Why Manufacturing Supply Chains Are Different
When many people hear the term supply chain, they typically think of logistics—moving product from the warehouse or distribution center to the end user. Manufacturing supply chains start with sourcing materials to make things that then go into the warehouse and distribution center. This process of bringing together many companies to manufacture complex goods has unique challenges that are often overlooked. Following are just two of those challenges.
Challenge #1: Assembling the supply chain
Simply finding the right manufacturers with the right capability and capacity at the right time is a significant hurdle. One reason is the difficulty in matching buyer needs to manufacturer capabilities. Buyers tend to describe their needs in terms of parts, while manufacturers typically describe their capabilities in terms of machines or processes.
Once you’ve identified manufacturers that can make your part, you need to narrow it down to those that can produce parts at the right quality, have the capacity to make it within your timeframe and, of course, offer it at the right price. Considering that this process typically takes place sequentially at every supply-chain tier, it is highly inefficient and time consuming.
Despite the prevalence of the internet and myriad supplier databases, research has shown that the process of finding new, qualified manufacturers is still largely manual. Because it is time-consuming and choosing new suppliers without sufficient due diligence poses risks, many companies simply rely on the same manufacturers over and over again.
Impact: Difficulty in finding new qualified manufacturers not only reduces a company’s ability to constantly keep pressure on pricing, it also inhibits innovation by limiting access to new processes, equipment and ideas. From a risk perspective, this challenge makes it harder for companies to reconfigure or reconstitute disrupted supply chains. The typical solution is to carry more safety stock, which increases costs.
Challenge #2: Coordinating the supply chain
Production planning within one organization is hard enough—try doing it across many tiers of a supply chain. This is particularly difficult since the participants of a U.S. supply chain typically have many different tools and methods for production planning. (Have you seen how many machine shops still use a white board or an Excel spreadsheet?)
Once you’re in production, how do you know the status of the orders? Many companies don’t know there’s a problem until the product doesn’t show up at the dock on time. Others consider knowing when product is shipped from one company in the chain to another to be a best practice.
However, knowing what is going on inside those suppliers in the chain—gaining visibility into the distributed manufacturing processes—is the key to identifying potential problems before it’s too late to do anything about them. It’s also a key enabler for true supply-chain agility.
One element that is really unique to manufacturing supply chains and exacerbates the above challenges is engineering changes. When you’re communicating technical data serially through multiple tiers with different software programs, it’s nearly impossible to predict the outcomes, much less achieve them.
Impact: Ineffective coordination of manufacturing supply chains can impact everything from delivery to costs, quality and even reputation. (Think Boeing 787.) This lack of coordination not only increases risk, it also makes it harder to quickly recover from any disruption.
While there are other issues that come into play, these two challenges highlight some of the key issues that are unique for manufacturing supply chains. The good news is that these challenges are being tackled by a number of organizations, including government and academia. Some examples include the following.
National Institute of Standards and Technology (NIST) In addition to helping develop standards that facilitate manufacturing communications, NIST also has programs like the Manufacturing Services Network Models Project. This project is developing standard production network models of manufacturing services to help address some of the challenges described above.
Department of Defense (DoD) As the nation’s largest buyer of manufactured goods, the DoD is in a great position to streamline the identification and selection of manufacturers. The Connecting American Manufacturing program will make it much easier for the DoD to find U.S. manufacturers with the right capability and capacity at the right time.
National Aeronautics and Space Administration (NASA) The people at NASA have very unique challenges and are highly focused on manufacturing supply chains. They’ve been looking at new approaches to help address these challenges, such as the concept on Page 25 of the Defense Standardization Program Journal.
Do you have examples of how your organization is tackling manufacturing supply chain challenges? Let us know!