Sourcing organizations should play a key role in assembling a manufacturing supply chain. After all, the procurement process is where you have the opportunity to assemble suppliers to meet specific supply chain objectives, such as responsiveness, resilience or innovation. Yet, this is one of the most overlooked opportunities to establish supply chain efficiencies that can help your company make or save money. If your sourcing organization isn’t a strategic component of your supply chain team—selecting suppliers based on something beyond just price, quality and delivery—then your company is disadvantaged right from the start.
Unfortunately, most manufacturers’ sourcing organizations, particularly in the small- to medium-sized companies, are focused primarily on price. While quality and delivery are also common considerations, most buyers are driven to find ways to cut costs.
But what if the customer is more interested in a resilient supply chain? Or innovative? Or a combination of those? How are those issues even codified, much less factored in?
One of the key challenges facing U.S. manufacturing supply chains is that factors other than price, quality and delivery are typically not considered beyond the top-tier manufacturers. The situation is made worse when that myopic sourcing practice occurs at each subsequent level in your supply chain. The result will always be the same—a supply chain consisting of low-cost providers.
There is a growing awareness among supply-chain professionals of the need to “design” the supply chain for a desired outcome. Thanks in part to the work by Dr. Steven A. Melnyk at Michigan State University, we have much greater clarity on five outcomes other than price, which are responsiveness, security, sustainability, resilience and innovation. While important for all supply chains, they are particularly important for manufacturing supply chains. (See “Why Manufacturing Supply Chains are Different.”)
One outcome that is front-and-center for most of us in the profession today is resilience, especially after the supply disruption caused by the Japanese earthquake and tsunami. In fact, a number of studies have found that supply-chain disruption is considered the number one supply-chain risk by most manufacturers. A low-cost supply chain certainly isn’t as well positioned to handle disruptions as one that is designed for resilience.
Overcoming the traditional approach of price-centric sourcing to select suppliers isn’t easy. However, successfully doing so has tremendous value in generating both a greater competitive advantage and higher profits. Following are three key steps to get your manufacturing supply chain better aligned with the needs of your customer.
1. Know what is important to your customer
Many manufacturers can deliver quality goods on time at a reasonable price. You can set your organization apart if you also deliver a supply chain designed to address your customers’ key needs. For instance, the risk of disruption is top-of-mind for everyone today. What if you’re able to deliver a highly resilient supply chain for just a little more than the low bidder? Not only could that make you more competitive, there also may be greater profits.
2. Source with the right priorities
Here is where you design and assemble your manufacturing supply chain to achieve a desired outcome. You’ll need to decide what criteria will help your sourcing team make the best decisions. If resilience is a key factor, then selection criteria may include visibility or ease of exchanging data between their systems and yours. This step requires your sourcing team to be integrated with the supply chain team and that the buyers are well-trained and even evaluated on the additional selection criteria.
3. Communicate priorities throughout the chain
Ensuring supply-chain success requires that your suppliers and all of their suppliers understand your customers’ priorities. They must commit to the supplier selection criteria you’ve established. This is likely one of the greatest challenges, as most companies don’t yet have visibility into their entire supply chain, much less the ability to communicate with and drive practices to the lower tiers. Couple that with the widely varied levels of sourcing sophistication at the sub-tiers, and the headaches begin. The easiest approach for now may be to have your sourcing team work with your suppliers’ sourcing teams, educating and coaching them. However, this will get very complicated very quickly, requiring a software solution that provides a centrally coordinated approach.
The good news is that there aren’t yet a lot of manufacturers doing this—at least not well. That means you have a chance to take the lead and really distinguish your company.
The bad news is that many of the tools and processes to make this approach work well are still being developed. There are a number of projects being led by the National Institute of Standards and Technology, the Department of Defense and NASA that will help pave the way for this effort.
In the meantime, you can start with just a few steps. Make your sourcing team an integral part of your supply chain team. Talk to your customers and ask them what is most important in their supply chain. (They may not have even considered that question.) Once you know the desired outcomes, determine the criteria that will help you select the suppliers to best deliver that outcome. Don’t forget to establish enterprise-wide metrics as well!