Supply Chains Q&A: What to Consider Before Making Changes

As the topic of supply chains continues to weigh on the minds of everyone in the manufacturing industry, expert Cynthia Kalina-Kaminsky, Ph.D. and owner and consultant for Process & Strategy Solutions, working with Quality Support Group, answers some pressing questions about what happens now.

Q. As manufacturers debate whether or not to move business away from China, what are some of the most important factors they should take into consideration?

In some cases, it’s not strategic to move away from China because they have the manufacturing resources you may need and relocating operations may not be possible or sustainable.

What you need to be asking yourself are these questions:

• Who has the skill sets we need?
• Where are they located?
• How do I best manage my supply chain so it is efficient, sustainable, and able to meet delivery demands?

You need to make your decisions based on the performance your customers want. Understanding what they expect means that you build in the value customers expect and you provide. The needed performance is embedded into your supply chain processes and chosen metrics. If asset management or cost is the number one priority, then China may be the right place for your manufacturing because they have efficient, low cost supply chains and manufacturing operations that have been honed over the years.

China has become really good at high-volume, commodity type manufacturing. But if you have small lots or highly customized parts, then you want to work with a manufacturer who is going to offer a different type of quality and convenience than what is available in China. Different because China may not offer the supply chain performance you need to focus on. High-mix, low volume manufacturers requires different skill sets, and the right suppliers are probably going to be elsewhere, maybe closer to home.

Supply chain location should be determined based on what makes sense for your business. If you can improve quality by moving closer to home, and improved quality is your number one priority, then go ahead and make the move. At the same time, be strategic about your decision. Don’t make unnecessary disruptions to supply chains that don’t need to be adjusted. Remember, it takes a long time to physically move entire supply chain components and get them up and running efficiently.

Q. How can a manufacturer determine which supply chains should be adjusted?

The problem companies are having right now is that they’ve built one supply chain over time, and now they’re trying to make it work for everything – it doesn’t. Supply chains provide specific value, and the value you embed attracts and keeps certain customers. Other customers want something different. They want a different performance. Unless you understand what that customer performance preference is, you can’t deliver it and your customers will complain.

It’s a mistake to try and be all things to all customers because it is then impossible to know which area of performance to focus on. Instead, your strategic management needs to think about exactly who the company wants to serve and what that service should look like. What metrics will each supply chain perform to and is that what we as a company want to provide? For each supply chain, there should be a singular focus on what type of performance is required for which customer segment the company is serving. Making that choice tells everyone the supply chain’s top performance priority and then allows for a little give and take in discussions about other performance aspects. But don’t deviate from the top priority. People and customers believe in the value your performance provides. Once you have that level of focus and built it into your supply chains, a change of performance priority will confuse and annoy your customers and even your employees who believe in the performance they have been providing.

Q. If a company decides their supply chain will be more resilient if they move to a new location, what’s something they can do to ensure their success?

This goes back to understanding who has the skill sets you need. Don’t just hire a manufacturer – hire an entity that can perform the type of manufacturing that you want to do and provide the performance your customers expect.

As you focus on hiring decisions, it’s advantageous to build a diverse workforce that includes women and minorities. A McKinsey study that came out last year reported that inclusion has to happen both horizontally and vertically, all the way up into the board of directors. Companies that have 30% or more inclusion, in both directions, financial outperformance their competitors who don’t focus on diversity by 36%. That’s a lot of money left on the table by companies who don’t prioritize diversity.

How does that increased financial performance come into being? Here’s an example: if you’re hiring someone in a new area or looking to expand into a new market, the best strategic move is to hire someone with the needed skills from the market you’re looking to enter. By hiring an individual who knows the market, you can build and sustain a presence in that market much more easily than if you bring in someone who may be familiar with manufacturing practices, but not the new market you want to enter. You gain different viewpoints that help expand the company’s potential revenue generation.

Q. Supply chains appear to be changing pretty quickly. Looking ahead, how will they have changed by the end of the year?

The way we collect and use data is going to be different. Having data is no longer optional. It’s no longer a question of where you have your inventory, it’s a question of having the right data about your inventory so you move, position, and schedule it correctly.

Right now, there is so much unorganized data, it’s difficult to know where it is, what to do with it or if you even have what you need. The information manufacturers gather, must be tracked and maintained digitally because digital tool use makes it possible to organize the data as it comes in. Once it is organized and located somewhere specifically, your data analysts can begin searching for trends, as well as help you start to prepare for integrating emerging advanced technologies such as blockchain technology. 

To some, digitizing data may sound like a daunting proposition. Everyone thinks everything needs to be updated constantly so they can have real-time information on everything. But they don’t.

Instead, as I keep stressing, manufacturers need to prioritize. In this case, it’s prioritizing what data you need and selecting the necessary right tools to meet those priorities. For smaller organizations just getting started on their digitization efforts, I recommend looking into cloud-based tools and storage. It’s a good starting point because it’s secure (meaning you don’t have to worry about Cybersecurity – the service provider does) and puts information in an accessible location. The up-front investment is manageable and the gains can be considerable.

At the end of the day, everything goes back to understanding your performance priorities and basing decisions off them. Included is everything from supply chain management to personnel decisions to knowing which technology to adopt. Once you know the performance to focus on, the rest falls into place.