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Manufacturer's Guide to Supply Chain Risk Management

Monday, December 2, 2024 | Supply Chain, All

Developing Risk Management Strategies for Small & Medium Sized Manufacturers

As a smaller manufacturer, you continue to be more vulnerable to global supply chain disruptions than larger companies. Having to pay more for materials, parts or shipping is a difficult dynamic as you may not be able to absorb short-term losses or even a lower margin.

Cost becomes less important if you can’t deliver a product. As uncertainty has been magnified, it is now essential for you to manage risk by preparing for and adapting to unexpected disruptions in order to increase your resilience and be responsive to customers.

In many ways the disruptions show how small manufacturers are more critical than ever. Many big companies are looking for additional domestic sourcing and do not want to take on additional liabilities and capital investments from bringing more in-house.

Those companies also are looking for trusted relationships in their supply chains that will work with them to provide added value from sustainable solutions and even product development.

A key aspect of being a trusted supplier and providing sustainable solutions is being resilient. Resilient manufacturers operate with situational awareness of all aspects of their business environment, from their supply chain inputs, to their in-factory processes, to their customer and market outputs.

Manufacturing Resilience Through Reshoring

Resilience doesn’t just mean reacting to catastrophic changes to remain in business. Rather, resilience means being proactive about understanding and anticipating all kinds of inevitable change and putting in place the strategies and tactics that allow a company to be both stable and agile at the same time.

Many manufacturers are pursuing domestic sourcing for materials and supplies as a way to overcome supply chain disruptions. There are substantial long-term benefits to reshoring, including: 

  • Reliability: Overseas suppliers means living with tariffs, global politics and economies and natural disasters in faraway places.
  • Trust: It’s easier to establish a relationship with common languages, cultures and proximity, and relationships become critical during disruptions. Relationships are key in understanding if a supplier can grow with your business and innovate alongside you.
  • Business Ethics: Concerns about overseas suppliers with intellectual property (IP), knockoffs and tooling are well documented. The U.S. has some of the strongest IP protections in the world, so working with a domestic supplier decreases the chances of IP theft.

Responding to Economic Impacts & Preparing for What Comes Next

The global supply chain crisis has evolved from a cascading series of events that began with the shutdown of factories in China at the onset of the COVID-19 pandemic.

Subsequent changes in buying behaviors and shifting demands have led to a variety of disruptions, including shortages of materials, parts and components, which in turn created shipping backlogs and bottlenecks that have impacted almost every industry.

The dynamic quickly shifted from the tactical, problem-solving approach to focus on resilience and becoming more strategic. The biggest increase is in multi-sourcing, which adds redundancies as an additional source of a supply to minimize risk while increasing options.

However, supply chain experts also are seeing an interest in relying, long-term, on domestic supply sources. Shifting from a reactive to proactive approach requires a continuous cycle of risk mobilizing, sensing, analysis, configuration, and operation. This will help optimize results while mitigating risks.

In essence, the questions a manufacturer asks in a dire, problem-solving scenario are similar for reshoring as reactive problem solving:

  • Can we go without it?
  • Can we substitute it? 
  • Can we build it?
  • Can we re-tool or get someone else to re-tool or produce it?

Execute the Plan, Follow the Results, & Repeat

  1. Mobilize the command center and the initial response plan. Establish operating rules for responses related to all supply chain interventions and contingency management. 
  2. Sense and prioritize new risks and implications to your supply chain components/services and ecosystem.
  3. Analyze what-if scenarios and protocols for source, plan, make, distribute and service implications.
  4. Configure and tailor the network and product flows to execute the protocols. Develop balanced scorecard to track and measure the effort. 

Manufacturers should seek to improve their overall resilience and move from reactive to proactive with long-term contingency plans, multi-sourcing to build in redundancy, and rating their existing suppliers.

The benefits for manufacturers who source from within the U.S. are extensive and include: 

  • More transparency and control of their supply chains, which can improve quality control, flexibility and time to market, while lowering supply chain risk that often comes from offshore production. 
  • Producing near the consumer often reduces total costs by shortening supply chains and contributing to a lean and agile strategy, with reduced waste.
  • Utilizing an extensive network of local and regional supply chain participants, ranging from your nearby MEP Center such as Impact Washington, to trade, economic development, and workforce development institutions, as well as local and regional government agencies that may offer timely incentives.

 

The Importance of Relationship Capital

Relationship capital is the value of a manufacturer’s relationships with its customers, suppliers, vendors and stakeholders in the marketplace. It is difficult and time-consuming for manufacturers to build and maintain relationships, but success in sourcing will come from manufacturers who invest in strengthening supplier relationships.

Many manufacturers are now looking for more reliable domestic suppliers to solve their shortages. 

Impact Washington has experts who can help you find new sources of supplies, which is not easy for many resource-challenged manufacturers who are occupied with their operations and deal in relatively narrow networks associated with their specialties.

Our staff will reach out to our expansive networks of manufacturers – locally and nationally- state and regional economic development organizations and trade groups to raise the manufacturer’s visibility.

 

Mapping Your Supply Chain Network

Manufacturers can map their supply chain to gain better visibility into those organizations’ exposures and opportunities. The most common approach to mapping is to use the “bill of materials” to drill down on the top five products by revenue, looking at component suppliers and raw material suppliers.

A supply chain mapping process might look like this:

  • Learn where suppliers and their suppliers are located
  • Research your suppliers to understand inherent risks associated with the company and external factors
  • Conduct a risk assessment

Once you have a good idea of your top-tier sites, start looking at the sites that supply to them. Experts suggest analyzing as many tiers as possible in the supply chain, because there may be hidden critical suppliers that manufacturers are not aware of. The network map should include:

  • Primary site activities performed at the supplier
  • Alternative sites the supplier has that could perform the same activity
  • How long it would take the supplier to begin shipping from the alternate site

Using domestic sourcing for materials and parts instead of overseas suppliers means risk mitigation begins much earlier in the entire process. The shorter distance a part or material must travel, and the fewer touchpoints involved and the less potential uncertainty.

 

What Supply Chain Disruptions Have Taught Us About Lean Manufacturing

“Just-in-Time” inventory is a popular concept in lean manufacturing which is meant to lower cycle times, reduce waste, and increase productivity. But that concept is not nearly as relevant now as it appeared to be years ago.

The reality is that risk has always been a significant factor in supply chains. The current dynamic requires flexibility and risk management. It’s not that lean principles don’t apply anymore, but the right question to ask may be “what’s the healthiest approach for us right now?” Continuous improvement should be the overarching mindset.

 

Tips for Washington State Manufacturers

The fast-changing supply chain dynamics have led to a greater demand for supplier scouting – which is essentially identifying sources for domestic products and capabilities.

The MEP National Network Supplier Scouting program works like this: a manufacturer seeking a new supplier contacts its local MEP Center, which shares the details and technical requirements of the opportunity across the MEP National Network™ — 51 MEP Centers located in all 50 states and Puerto Rico, with over 1,400 trusted advisors and experts at more than 385 MEP service locations.

For Manufacturers in Washington State, our experts at Impact Washington, through best practices, will assist you in scouting for domestic manufacturers with the capacity, capability, and interest to meet your immediate need.

All the MEP Centers nationwide provide aggregated information so dialogues can begin to assist in determining potential suppliers. Impact Washington will help facilitate company interactions.

Learn how to optimize your supply chain practices at our Supply Chain 101 workshopThis in-person course focuses on foundational principles and risk management to support overall business strategy and supply chain optimization.

 

Impact Washington: A Source of Growth and Prosperity for Washington Manufacturers

As part of the MEP National Network Supplier Scouting Program, Impact Washington is uniquely positioned to help manufacturers identify, assess, and mitigate potential risks. 

If you're a small or medium-sized manufacturer in Washington State, we can help you achieve supply chain resilience. Our no-cost supplier scouting program offers three unique and comprehensive services: our manufacturing directory, supplier intake form, and scouting opportunities. View our supplier scouting program for more information. 

Are you a supplier looking to connect with a local company? View open scouting opportunities across the U.S. and Puerto Rico. 

At Impact Washington, our mission is to help manufacturers excel in every facet of business. Let us help you build a resilient supply chain while you focus on driving business forward!

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