Do you know what your suppliers are doing?

By: 
May 16, 2013

The truly amazing revelation that came out of the garment factory collapse in Bangladesh three weeks ago is the number of clothing manufacturers that didn’t know their clothing was being made at that sub-contractor’s facility. The supply chain is a tricky business. OEMs contract to a supplier to get specific parts, but if that contractor maxes out capacity, often they’ll sub-contract to another company lower down on the tier without telling the OEM that their parts are being made elsewhere.
   
With all the attention being paid to supplier health over the past year, particularly by the automotive OEMs, the new emphasis is on knowing not only how your supplier is fairing but who your suppliers really are. Do you have supplier visibility? Or does it take a disaster – man-made or natural – to show you where you’re vulnerable?

KMPG (www.kmpg.com) just released its 4th annual Global Manufacturing Outlook – Competitive Advantage – Enhancing Supply Chain Networks for Efficiency and Innovation. KMPG surveyed 335 C-level executives globally, including 95 in the U.S. “Global manufacturers are putting their supply chains at the center of their business strategies to serve as the foundation for operation efficiency and collaborative innovation,” noted the survey. Ironically though, nearly half (49%) of global manufacturers and 54% of U.S. manufacturers surveyed do not have visibility of their supply chain beyond Tier 1 suppliers.

Only 9% of the 335 respondents of the KPMG 2013 survey say they have complete visibility of their supply chains, and a similarly small percentage say they are able to assess the impact of an unplanned supply chain disruption within hours; 36% said it would take between one and six days to address the impact.
   
“Obtaining real-time visibility across all tiers in the supply chain can significantly increase speed to market, reduce capital expenditures and manage risk,” said Jeff Dobbs, global sector chair, Diversified Industries and a partner with KPMG in the U.S. “The winners will be the ones who can network real-time across their entire supply chains, reducing the information lag that costs companies significant time and money.”
   
While OEMs’ concern about their supply chain remains at the center of their business strategies, the KMPG survey revealed that executives of global manufacturers “continue to eye tepid economic growth with subdued optimism. Reducing cost structure is a major priority for 51% of those survey respondents, followed by sales growth (36%), and improving risk controls (36%). To keep costs down, 58% plan to regionalize or localize their supply chains, a trend that several surveys of late show is catching on.
   
“China and the U.S. remain the top sourcing locations, but the report shows that many will keep sourcing closer to their major markets over the next two years,” said the report. “Nearly 90% of U.S. respondents will increase sourcing in the U.S. followed by Canada (18%) and China tied with the UK at 13%. In China, 85% plan to increase sourcing in China, 32% in Hong Kong and 6% in the U.S.”
   
Supply “chain” may soon be a term no longer used in favor of supply “network” where “collaboration and innovation thrive.” As companies step up investment in innovation executives are “increasingly looking to their supply network for ideas” said Dobbs. Just over half of respondents (51%) say that partnerships with suppliers will define the direction of innovation, and over the next two years, 57% expect at least 10% of their revenues to come from innovations.
   
“Supply chain partners will play a critical role in a manufacturer’s innovation strategy as part of their investment in R&D,” said Dobbs. “Mitigating the challenges of collaborating with partners is complex; close familiarity with who your suppliers are and how they operate will certainly help optimize performance.”

The KMPG survey contains some good advice for suppliers, particularly those processors and mold manufacturers who supply large, global OEMs, who need to step it up with regard to being more innovative. Cutting-edge processing technology and creativity and innovation with respect to mold design-for-manufacturability, reducing costs-to-manufacture and responding quickly to changing demands as OEMs meet consumers’ ever changing needs will be critical for their success as suppliers.

For example, last summer a major medical device manufacturer held “Technology Days” for an entire week during which they invited their top tier suppliers to make presentations on the latest and greatest technology in their respective industries. Participating were several large mold manufacturers, mold component suppliers, and molding machinery manufacturers. This global OEM obviously knows that it does well to keep up with new products and technology in the medical device arena, and that suppliers need to keep them informed about innovations in manufacturing technology that will help this OEM reduce costs, improve quality and productivity and, of course, increase profitability in a highly competitive market.

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