How deeply have supply chain issues impacted your manufacturing business?
On October 27 at the Manufacturing First conference in Green Bay, Wipfli moderated a panel on the supply chain issues that are facing manufacturers. Panelists included manufacturing leaders, including suppliers and OEMs — and they had a lot of insights to share.
At the outset, panelists discussed how early COVID-19 pandemic shutdowns and negative order rates created work stoppages that have been difficult to recover from.
“When those payments came through for consumers, people started buying things, and it caught us all off guard,” said Sachin Shivaram, CEO of Wisconsin Aluminum Foundry. “I feel like that’s what’s happening broadly across the economy.”
Steve Ford, Executive Vice President of Lapham-Hickey Steel, shared some insight into his industry. One challenge, Ford explained, is that the pandemic caused steel manufacturers to shut down capacity. But there’s a $50 million cost to bring a blast furnace back online, so it’s not like flipping a light switch. That process happens slowly over a period of 14 to 18 weeks.
Talent shortages are another contributing factor to supply chain disruptions. Panelist Dane Dorn, a supply chain manager at CMD Corporation, discussed the steps his company was taking to attract and retain employees, including adding air conditioning to the production floor and rethinking standard shift practices. CMD has introduced flextime policies that allow employees more leeway in terms of scheduling hours and being home for important family events.
Panelists discussed ways to engage suppliers and what it took to get to the “top of the list.” Shivaram, whose company is primarily on the supply side, shared how some of their customers had embedded representatives into his offices in order to stay “squeaky” and ensure product would be released on schedule.
Ford reiterated the importance of long-term relationships. It’s too late to start building relationships when the supply chain is already in crisis. He encouraged manufacturers to learn from today’s stressors and look ahead to creating strong connections that will ease future supply chain woes.
And while Dorn touched on the importance of communication and forward thinking, he shared how his organization has been actively working to redesign or change out parts affected by supply shortages. They’re also using 3D printing to manufacture parts they’re not able to source right now.
Traditionally, or in recent history at least, many manufacturers have operated on a just-in-time supply model. But in times of critical supply disruptions, companies are looking at more of a just-in-case model — buying what they can get, when they can get it.
But buying ahead introduces the risk of inventory obsolescence. Moreover, some suppliers are putting measures in place to ensure customers aren’t buying more than they need.
Ford explained how the steel industry uses customer allocations based on their historical purchases. Dorn shared that his organization has had to create forecasts to justify forward orders. “Our suppliers are holding us accountable to what we truly need,” he said.
Meanwhile, suppliers are also rewriting contract language on purchase orders. Whereas roughly 20% of the items on a PO used to be non-cancelable/non-returnable, today that’s shifted to 80%. Once you place an order, those items are yours, so companies need to be very careful before issuing POs.
Supply chain technology is becoming ubiquitous, with tools like artificial intelligence or Microsoft Power BI helping to save labor in sourcing and procurement. Other systems are available that enable production machines themselves to automatically reorder materials or repeatable items as work is scanned through the system. Panelists also discussed intelligent scheduling software to reduce downtime on the production floor.
Ford raised the plight of over the road truckers and talked about how changing DOT regulations have driven drivers out of the business. He shared how downtime waiting at ports or customer sites can no longer be counted as rest time. Drivers might hit their 70-hour/week limit when they’re just three hours from home, and then those drivers are forced to sit for 34 hours, just a few hours away from their family and their own bed.
Ford also talked about how drivers are getting hung up at customer sites with no way to anticipate their day or family life and how mandated rest periods are driving down their average hourly pay. “They’re quitting in droves,” he said.
Looking ahead, some manufacturers are already booked out for most of 2022. That kind of backlog means organizations have to question capacity issues and whether the timing is right to invest in new equipment or grow through acquisition.
“It’s hard to not feel confident about what’s ahead of us. It’s difficult to perceive anything fundamentally unhealthy about the economy,” said Shivaram. “People aren’t overstretched in terms of credit, business modeling is good and it feels like things will continue. But we’ve all learned this word ‘transitory’ now. It’s also hard to imagine this situation being anything but transitory.”
He continued, “The challenge for us is to avoid doing anything that’s going to damage our survivability. … But the thing that’s more exciting for us to think about his how we’re using this moment when literally anything feels possible. We can invest in brand new business, we can acquire a business, we can change. So how do we utilize this one window of opportunity when we could dramatically change our business and put ourselves on a different path forward?”
Wipfli’s manufacturing group provides consulting and strategic advisory to help manufacturers address issues like these. Visit our manufacturing page for insights and solutions to the unique challenges facing manufacturers right now.
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