Inventories of raw materials and finished components are diminished because of the COVID-19 pandemic, yet many manufacturers don’t realize the cost of downtime caused by stock-outs and other production-related problems. In fact, some companies underestimate factory downtime by as much as 300%. That’s an expensive oversight in an industry where downtime can cost major OEMs hundreds of thousands of dollars per hour. Your business may be smaller, but you can still lose a significant amount of money.
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Take the case of a mid-sized manufacturer with 150 line workers, each earning $50 per hour. If purchasing can’t get any of the parts that production needs, the line comes to a halt. The cost of line-worker downtime alone is $7,500/hour — and that doesn’t include manufacturing overhead. If the mid-sized manufacturer can get only some of the parts it needs and production is 70% operational, the cost of this downtime is $5,520/hour. Across half of an eight-hour workday, that’s more than $20,000.
Whether you’re restarting production or ramping up manufacturing, the “new normal” engendered by COVID-19 requires some fresh thinking. Here are four ways to strengthen your supply chain.
- Determine product availability. According to a recent Institute for Supply Management survey, almost 75% of U.S. companies have experienced disruptions in their supply chains as a result of transportation restrictions related to COVID-19. Can your pre-pandemic suppliers still provide what you need when you need it? Find out. The answer may not be “yes,” and you may not like the minimum order quantities. If you can expect anything, it’s probably delayed deliveries from businesses that were shut down and just now are restarting.
- Find hidden value in your supply chain. How well do you know your vendors' capabilities? For example, some of my company’s customers think we’re just a distributor. Others think we’re just a fabricator. Fewer know that we distribute, fabricate, and provide services such as acoustical testing for custom insulation. It’s easy to overlook a vendor’s additional capabilities when you’re busy — don’t wait for production downtime to investigate. Now is the time to find hidden value in your supply chain.
- Look for more ways to save. Given the law of supply and demand, the prices you paid before COVID-19 may have risen. If your buyers didn’t lock in pricing, your company needs all the leverage it can get during pricing negotiations. You can get a volume discount of sorts when you buy multiple products from a single supplier. Purchasing parts and materials from fewer vendors also reduces the number of shipments that you need to order, receive, inventory, and invoice. You can secure more favorable payment terms, as well.
- Monitor vendor performance. When all of the COVID-19 restrictions are finally lifted, your company hopes to be busy as you meet pent-up demand. No matter how hectic things get, take the time to monitor vendor performance with care. There’s a cost to adding and maintaining new vendors, especially ones you don’t buy much from. Carrying a long list of suppliers costs senior management plenty of money on vendor scorecards. And if your vendors can’t deliver during the “new normal,” it’s time to shake up your supply chain.
About the author
Jon Campbell is Branch Manager at Elasto Proxy, a rubber and plastics distributor and fabricator with value-added services, at the company’s Simpsonsville, SC, facility. Elasto Proxy is an “essential business” that has remained open during the COVID-19 pandemic.