As a manufacturer, your supply chain is everything. Without it nothing comes in and nothing goes out. In this blog, Martin Hyman, specialist Manufacturing Advisor at the Business Growth Hub shows why carefully mapping and managing your supply chain is so vital.
A supply chain is like a two-way street. It’s not simply the supply of materials with which you make your product, it’s also your customers’ and your own internal processes as well. In fact, it includes everything from design, development, prototyping, sourcing and testing, through to production, storage, distribution and sales - not to mention the information systems and labour needed to coordinate these activities.
Taking the right measures to optimise this chain results in more resilience, faster development and production cycles, on-time deliveries and reduced costs.
Rule one: Every company needs a map
No company is an island, it’s always a supplier as well as a recipient of supplies. If you haven’t already done so, your first step in supply chain management is to map out this flow from start to finish. Make sure to capture both physical flows of goods and materials and the information flows that allow supply chain partners to communicate.
No company operates in a vacuum either, so try to capture the big macro trends around you as well. Is end-user demand rising or falling? Is the supply of your raw material secure? How could political events like Brexit affect the demand or supply of your product?
Rule two: Be wary of over-dependence
No one customer or supplier should be too important to your business. They could go elsewhere, they could bring production in-house or they could go bust. Nothing is set in stone and it’s your job to plan for these eventualities. Keep in mind their size, too: if you’re the smallest customer they might serve you last; if you’re the biggest they may not be robust enough to survive if your order levels vary.
Diversify where possible to manage these risks. Consider if it is appropriate to use a dual sourcing strategy to ensure security of supply and make sure legal agreements are in place in case a supplier goes out of business, particularly if they use tools that you own the rights to.
Rule three: Don’t put price on a pedestal
It can be easy to fall into a trap of switching to a cheaper supplier, perhaps further afield or overseas, only to find that costs go up in the long-term. Be mindful of the hidden costs caused by minimum order requirements, lead times for manufacture and shipping, logistics, quality control, payment terms, the flexibility to ramp up production and the ability to deliver prototypes or ‘specials’. When developing fixed-term or long-term relationships for the supply of goods or services, Service Level Agreements (SLAs) can be important tools to help manage these risks.
Rule four: Don’t be left holding the baby
If you purchase stock outright and hold it on shelves, make sure it’s based on forecasted usage and you know how much it costs to store - you don’t want to end up holding the baby. One of my clients experienced this first-hand after ordering multiple boxes of parts when it only really needed one, leaving it with much-needed cash tied up in then obsolete stock.
Download our Inventory Management factsheet
Another stocking method is consignment, where stock is legally-owned by one party but held by another, such as vending machines for tooling where you only get charged for the goods when you use them. Other companies use a Direct Line Feed (DLF) approach, where the supplier is responsible for drip-feeding you with a supply that matches your consumption rate. Costs are lower because supplies do not need to be stored in great number and re-ordering can be done electronically. Many companies couple DLF with a Kanban process.
Another consideration is whether switching to a Make To Order (MTO) model could help with stock management. While a Make To Stock (MTS) model suits some manufacturers, MTO can help to avoid excess stock, especially for expensive parts that you don’t want to hold on to for too long. Some companies use a half-way house model by purchasing or manufacturing part-finished or standard units for stock, but only investing in customisation and finishing once an order has been placed.
Download our MTS vs MTO factsheet
Rule five: Monitor and benchmark
It’s important to monitor your suppliers regularly to ensure quality is being maintained by applying Key Performance Indicators (KPIs). Audit your suppliers with a visit where possible and apply the same KPIs to your own operations too.
Download our Supply Chain Measures factsheet
You should also benchmark yourself against your competitors, and your suppliers against each other, by introducing a scoring system. Your Trade Association is often a good place to start for benchmarking information.
Rule six: Bite the elephant a bit at a time
Tackle low-hanging fruit first - if you can’t make a cup of tea because there’s no milk in the fridge, that’s a supply chain issue! A previous client of mine had a CNC machine where the battery backup had failed. Nobody had thought to stock a spare battery, so production worth thousands of pounds an hour had to be put on hold while waiting for this simple, low-cost item to be delivered.
You can avoid these mistakes by understanding the consumable supplies that affect your production processes and deciding on appropriate Minimum Stock Levels to hold - whether it’s one litre of milk or one back-up battery.
Rule seven: It’s a team effort
Supply chain management cannot simply be left to the Managing Director or Procurement Manager. Keeping on top of everything is a team effort, so make sure your employees, from goods-in to goods-out, feel like they are part of a valued team. Encourage them to recognise and take responsibility for raising supply chain issues and suggesting opportunities for improvement.
Rule eight: We’re in your supply chain, too
Finding the right person to help you is also a supply chain activity and this is where we come in. If you would like to speak to a Manufacturing Advisor about fully-funded support or grant funding, complete this form or call 0161 359 3050.
Book your free place at the next Manufacturing Champions event on 19 September to hear the expert view on how to implement an effective Supply Chain Management System.