What is clear is that VUCA (volatility, uncertainty, complexity, ambiguity) is continuing in the forefront and will continue to be our “new normal”. As I recently debated with the Wall Street Journal, we are in an era of non-stop disruptions. Look no further than the escalating war of Russia and Ukraine (with Russia making even more money to fund the war with the higher prices of oil and their increased sales to China and India), China sending spy balloons over US critical infrastructure while Zero-COVID policies disrupted supply during 2022, weather events, strikes, bloated inventories, and much more. The bottom is that if you don’t take control of your manufacturing, you will be at the mercy of these non-stop disruptions.
Ways to Take Control of Your Manufacturing
The good news is that there are many ways to take control of your manufacturing. The key is to stop leaving your ability to fulfill customer demands to chance. If you do, you will continue to be deterred, delayed, and derailed in servicing your customers and have no hope in taking advantage of opportunities as they arise.
Let’s look at a few good options:
- Domestic manufacturing/ reshoring: Expand domestic operations and/or move your operations back to where they came from (assuming your customers are there as well). This is the ultimate in taking control by fully taking control of your manufacturing process. There are several U.S. companies reshoring. For example, I was recently quoted in Sports Business Journal about Daktronics on their domestic sourcing strategy. Several big companies like Tesla, Intel, and others are investing in domestic manufacturing whereas mid-market companies are as well but are less likely to promote these moves until complete.
- Nearshoring/ Friendly-shoring: Expand your sourcing to nearby countries (to your customer base), and, most importantly, ensure you expand and/or move to countries with friendly relations to the U.S., Europe, and other allies. If you move supply and get turned off at the next disruption, you have wasted an enormous amount of money and given intellectual property and capabilities to unfriendly nations.
- Backup sources of supply: If you cannot quickly reallocate your manufacturing capabilities, it must be a critical priority to develop backup sources of supply. Even if you have control of your manufacturing, you should develop backup sources of supply. The next decade will not be for the faint of heart, but it will be full of opportunities for those who are proactive and forward-looking.
- Build partnerships with regional/ local suppliers: Instead of taking full control of your manufacturing operations, you can source regional/ local supply partners. For example, a client has greater sales opportunities than their existing facilities can supply, and so they are proactively qualifying suppliers and offloading volume to regional manufacturers.
- Outsource a portion of your manufacturing process: Instead of fully outsourcing a product or group of products, you might have an opportunity to outsource a manufacturing operation. For example, a client is outsourcing machine shop work and completing the remaining operations steps in-house. Similarly, they outsource the weld process to a different group of suppliers for certain products. These actions allow them to fulfill their sales volume with high service levels while maintaining control of service and quality to the customer.
- Leveraging technology like 3D printing: For certain types of products, companies are using 3D printing/ additive manufacturing to rapidly produce close to customers and/or next step manufacturing operations.
Priorities to Keep in Mind
As you reevaluate your manufacturing footprint, you should be keeping several priorities in mind:
- Raw material supply: It might be obvious, but as you move or reallocate manufacturing operations, it is important to consider your raw material, component, and ingredients supply base.
- Transportation infrastructure: If anything has become clear since the pandemic, it is that container shipping, trucking, rail, air and last mile delivery must be in sync with the end-to-end supply chain. Otherwise, nothing else will matter as your customer will not receive their product.
- Distribution network: Similarly to transportation infrastructure, as you reallocate manufacturing capacity, consider impacts and requirements for your distribution network. Is your distribution network flexible?
- Technology: There is no way to succeed if your technology infrastructure is not supporting your end-to-end supply chain visibility and performance. Is your ERP system agile? Do you have business intelligence, dashboards, and reporting? Are you connected to supply chain partners with EDI, Blockchain, etc.? Are you automating as you expand domestic capacity?
- Talent: Certainly, there is no chance for success without the talent to execute these changes. Have you reallocated responsibilities? Expanded capabilities? Provided training? Supported in-house resources with consultants, trusted advisors, etc.?
- Capital & cash: Do you have access to capex (capital expenditures) and the working capital to fund whatever actions you need to take? It isn’t free to take control of manufacturing. There will be investments and cash required to support long-term success.
- SIOP / S&OP: Smart executives are rolling out Sales, Inventory & Operations Planning programs to get in front of customer demand, how they will fulfill that demand (reallocating manufacturing capacity, make vs. buy), and whether they should make changes to their pricing, supply chain footprint, cost reduction programs and other execution plans.
Please contact us with stories, issues, and opportunities on what you’re doing to take control of your manufacturing. And, please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Learn more about these topics in our blog and download your complimentary copy of our eBooks including our new release, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Success.