The four biggest myths about fixing supply chains

Originally posted on JJS Manufacturing blog

A mix of preventable and non-preventable events over the past couple of years has left supply chains shipwrecked. From a lack of global semiconductor chips to shortages of silicone, supply chains have been battered from all sides. Many myths have emerged about how we can fix the problem. Here JJS Manufacturing’s Danielle Olivier identifies four of the most prominent ones and the reasons they won’t work. 

Myth 1. Supply chains can be fixed by completely reshoring them

Many manufacturers around the world have begun to question whether they should try to completely reshore their supply chains. And although they feel as though reshoring large parts of their operation will lead to smaller profits, a recent study by Deloitte suggests 75% of companies are planning to accelerate their reshoring initiatives.

While global events were probably the catalyst for this trend, reshoring is also being driven by customers’ (both the end consumer and industry) preference for the products they buy to be made in (or at least near) their home country.

But how likely is it that reshoring supply chains will repair the ailing vessel?

For the past 40 years, products have been mainly outsourced to cheaper geographies. But now, according to the Harvard Business Review (HBR), after such a long time, bringing manufacturing home is easier said than done. The HBR was specifically referring to the US, but the same is true for most countries with developed economies. For example, a European country trying to rebuild the Asian electronics industry would need to recreate multiple dimensions of the supply chain—not just the physical manufacturing plants.

Reshoring for critical products such as pharmaceuticals could be worth the increased cost, but cold economics limits other supply chains as the cost of establishing them domestically could be higher than the value of the global industry. And no amount of government support will help create battery industries from the bottom up in western Europe. While the world is changing, businesses must continue to be profitable to survive.

Also, there are limitations to what can be reshored; it is impossible to reshore certain supply chains as the essential resources may only be available in several countries. For example, 86% of the world’s lithium is mined in just three countries: Australia, Chile, and China.

So, should we just resign ourselves to outsourcing in low-cost countries?

The underlying problem hasn’t gone away. Companies are still looking for supply chain resilience and are aware of their customers’ changing attitudes to where their products are made. While it is not possible to secure every element of a supply chain domestically, it certainly makes sense to strengthen domestic supply chains.

These can be bolstered by looking further afield than your own national borders. By buddyshoring, which relies on a series of trusted relationships with foreign countries and suppliers—something akin to Australia, India, and Japan’s international Supply Chain Resilience Initiative. The initiative acknowledges that only looking inwards is not the most robust strategy, but buddying with like-minded partners could be a solution.

Manufacturers that have alliances with strategic partners in diverse geographies will be best placed to weather any potential future storm. Companies with a global footprint are likely to be the most resilient.

Myth 2. It’s all about reducing costs

A quick Google search for ‘supply chain costs’ yields many articles on the myriad ways for supply chain professionals to cut costs. There are numerous tips on how to reduce costs—all of which may be valid—however, only viewing the supply chain from a loss-gain perspective can lead to net loss. The rawest technique of obtaining the lowest possible unit price can lead to inefficiencies such as increased transport costs and a poor final product.

Suppliers should be part of the solution rather than something that is seen as a necessary hurdle. More value can be created by evolving the way supply chain professionals partner with their suppliers—leveraging their expertise, which could lead to better products in the marketplace. If the manufacturer-supplier partnership is collaborative, it is easier to pursue meaningful goals for customers.

Reducing cost is important, but it doesn’t necessarily generate value. When supply chain professionals work with suppliers, the manufacturer may respond more accurately to consumer demand by making use of suppliers’ innovative technologies and improved service offerings. Customers want a mix of value and innovation, so manufacturers and suppliers must work together to materialise it.

Myth 3. It’s all about procurement

Only thinking about the supply chain in terms of purchasing misses the vital strategic element in modern digital businesses. Today’s supply chain needs to have a strategic vision, be flexible, and involve entrepreneurial solutions. Therefore, as well as procurement, supply chain professionals need to focus on the following 11 key areas:

1. Innovation: Being aware of disruptive innovations and continuously improving processes allows supply chains to be proactive rather than reactive.
2. Customer expectation: Knowing your customers and their expectations from you allow manufacturers to efficiently meet their requirements.
3. Technological expertise: Supply chains rely on an in-depth understanding of technologies and the right time to use them to create the most value.
4. Systems thinking: Viewing the supply chain as a whole with cause-and-effect relationships for the employees, technologies, and processes enable the company to function as an interconnected system.
5. Project management: Dynamic supply chains require dynamic project management to ensure your supply chain moves in synchrony with your customers and suppliers.
6. Risk management: Planning for risk and implementing mitigation strategies is vital for increasing robustness, decreasing vulnerability, and ensuring continuity.
7. Talent management: Supply chain professionals must have proper training and be given the power to do their jobs. They must also be aware of how their job affects coworkers and the whole company.
8. Internal collaboration: Focusing on the company as a whole rather than on separate areas means supply chain professionals can work towards common goals.
9. External collaboration: Every part of the supply chain should be connected, and the focus must be on building long-term, collaborative relationships. Emphasis should be placed on trust-building and information-sharing.
10. Compliance: Key supply chain skills include understanding regulations, customs policies and procedures, trade compliance, security, and freight management.
11. Global perspective: Supply chains know no boundaries, and their management is necessarily global. From shipping products across the globe to instant information sharing, a global perspective is key.

Myth 4. Autonomous vehicles will solve supply chain inefficiencies

The global shipping container crisis was partly brought about by bottlenecks in US ports caused, again, in part, by driver shortages. This has led to several voices calling for the introduction of driverless solutions, which they believe would improve the speed and reliability of deliveries and compensate for driver shortages.

However, despite the world desperately trying to move towards autonomous driving, it is unlikely to fix the terrestrial transport problem in the near future. And the main reason is safety.

Elon Musk, the soothsayer for the AI age, is generally a good indicator of what is likely to happen. However, he has predicted self-driving cars every year since 2014—never quite being able to crack the wheel nut.

Manufacturers have largely solved the problem of driverless vehicles, but there is still a short but significant way to go. Most self-driving vehicles’ operations are straightforward; however, a small number of operations are complex, and an even smaller number are extremely complex.

Human drivers must make instinctive decisions based on learned experience, but machines cannot yet do this. Someone stepping out into the road or roadworks that require a vehicle to drive on the opposite side of the road or a pavement are, currently, outside of their reach.

Currently, automating terrestrial transport cannot fix bottlenecks caused by driver shortages. A more realistic solution to dealing with this issue is to improve the efficiency of terrestrial transport logistics. Ports around the world, especially ones on the West Coast, have been bottlenecked, with drivers spending over eight hours from entering the port to leaving it. Ensuring there were no bottlenecks and that loading and unloading at ports is smooth and quick would be a clear win to fix part of the supply chain problem—before autonomous vehicles finally become safe.

Conclusion

There is no doubt that the supply chain has suffered over the past years, but there is no one panacea. Fixing supply chains in the long-term relies on a blend of the digital and the human—we may rely on technologies to make processes more efficient, but humans are still the ones in control.

Original equipment manufacturers (OEMs) outsourcing product design and manufacturing can make their lives easier by partnering with an EMS provider that prioritises digital technologies led by informed supply chain professionals taking the right decisions at the right time. They worry about supply chain problems so you don’t have to.