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Losing track of a complex supply chain may lead to big problems

By: David Hutton

March 12, 2014

WESLEY CHAPEL, FLA. — A supply chain is only as strong as its weakest link and carmaker Aston Martin recently learned the hard way that problems can occur at any point in the line.

The Graydon, England-based luxury car maker recently recalled 17,590 cars, and is bringing production of an accelerator pedal back to England after finding that a Chinese pedal supplier used counterfeit material.

Aston Martin was on the lips of attendees at the Plastics News Executive Forum on Feb. 25 during sessions focusing on supply chain issues.

Bill Michels, president of ADR North America LLC, led a session titled “Managing the Increasingly Complex Supply Chain.” His company focuses on purchasing and supply chain management. He also is president of ADR-ISM Supply Chain Management Consulting (Shanghai) Co. Inc. and a senior vice president of the Institute for Supply Management.

Michels pointed out that supply chains can be long, complex and impacted by myriad issues, from cultural challenges, natural disasters and civil strife in a nation.

“One of the things that sparked reshoring was the fact that we had a big earthquake in Japan and a lot of parts were lost,” he said. “We had floods in Thailand. Companies started to wise up and started to move their suppliers closer to the company.”

From a customer’s perspective, industries will continue to consolidate, which will result in completing dedicated supply chains.

“The leanest, most efficient and most productive supply chains will have a competitive advantage in the marketplace,” Michels said. “The future requires strategic positioning.”

Customers also are focused on the value they can get out of the supply chain. The leverage is with the buyer when there is a lot of competition among the available suppliers.

“For the buyer in that position, the key is to maximize profit,” Michels said.

Michels pointed out that suppliers can be placed into four categories: leverage, acquisition, critical or strategic.

For a supplier, Michels said it is important to be a strategic supplier. It could be achieved through product specifications or as a result of location.

“That is a relationship that gets you a competitive advantage,” he noted. “You are a supplier that a buyer would have a difficult time replacing.”

 

Changes

Through consolidation, integrated supply chains are becoming more common.

“When we get integrated supply chains, we get integrated business systems,” Michels added. “It can become very difficult to source [suppliers] out.”

Suppliers must align their business operation with buyers’ supply chain strategies in order to be in sync.

In developing strategies, suppliers must consider new product development, consolidation, appliances, consortiums for purchasing materials, divestures, expansions and outsourcing.

Buyers want to know if you are able to deliver lean, have integrated with your supply chain and are you working on zero defects.

Buyers also are looking for total cost and also cost containment.

“They want you to get more productive, they want you to get more efficient and they want you to get leaner,” he said. “They are not going to entertain a cost increase because their customers are not entertaining cost increases.”

Buyers also want transparency in pricing from their suppliers.

“Computing resin cost isn’t that difficult and you can estimate energy and overhead,” Michels explained. “Most buyers don’t want that transparency to beat you over the head with the cost. They want the transparency to be able to run an efficient supply chain.”

Buyers are pushing their suppliers to drive innovation and revenue generation and they are looking at them to bring value in terms of R&D, new product innovations, new opportunities to grow and increasing speed to market and chances to cut links in the supply chain.

“All buyers are looking at how you bring them a competitive advantage,” Michels noted.

There is a big effort across the globe to become more sustainable. This is having a ripple effect through the supply chain.

Labor is becoming less important when considering the location of a plant and organizations are returning to their core businesses.

“They are focusing on their core business,” Michels said. “They are moving away from vertical manufacturing.”

Talent is one of the biggest issues facing suppliers, and virtually any manufacturer. 

Companies are willing to invest in labor, and as a result training costs have been increasing.

Younger workers are providing new challenges through the supply chain, and companies have to learn how to train and work with the different generations.

With labor at a premium, companies today have to develop and retain the talent they have.

That isn’t the case in China, where the average worker leaves a job after just two years, usually for more money.

The buyers, Michels added, want more and more from suppliers, including revenue-generating ideas, no inventory and R&D and they are pushing this back on the supply chain. They want significant innovations coming to them.

“They aren’t looking at supply chain anymore,” he said. “They are looking at what value you bring, how you increase the value and how you can measure that in terms of benefits and dollars. We are going to always have that pressure on price.

Buyers are developing longer-term relationships with their suppliers and this will drive results for innovation.

Go green

Companies also must consider their green supplies for buyers who increasingly want to be able to tout their “greenness” to their customers.

“In the future, I will predict here today, supply chains will get more transparent,” Michels said. “More and more companies will drive sustainability and more companies want to be sustainable.”

There also will be more products with smaller footprints. Product life cycles are becoming shorter. There will be fewer products that can be molded on a machine 7 days a week, 365 days a year without interruption.

“If we ignore the trends in sustainability, talent management, productivity and transparency, we are going to be in a devastated state,” Michels explained.

To survive, Michels said the plastics industry also will see continued consolidation and technology breakthroughs. Performance metrics will be increased and companies on the cutting edge of innovation and product design will have a competitive advantage with customers.

Moreover, the discussion will move from supply chain to value chain. Suppliers have to manage risk and ensure they are not opening their customers up to risk.

Companies also must develop good procurement policies, negotiation strategies and IT systems that manage the supply chain.

“We can compete or we can collaborate,” Michels said. “It is up to you as suppliers to figure out what you have to do to be a strategic supplier.”