By focusing on improving supply chain resilience there is an opportunity for OEMs to position themselves for growth and profits, say Vendigital’s Nick Harrison (pictured top) and Paul Cooper (pictured bottom).
Many manufacturers have faced significant supply chain disruption over the past year – some of it caused by the pandemic, and the stop-start effect this has had on production, and some by Brexit and new UK/EU border controls. By focusing on improving supply chain resilience on the way to recovery, there is an opportunity for OEMs to position themselves for growth and a more profitable future.
The past year has been challenging for manufacturers for many different reasons. Some have been forced to shut down temporarily due to breaks in supply or shortages of critical components such as semiconductors. Others have been on-lining as much capacity as possible in an attempt to keep pace with unprecedented levels of demand for products such as PPE and Covid-19 test and trace technology. In other sectors, such as aerospace manufacturing, the effects of the pandemic have been even more severe. Fewer flying hours and reduced MRO requirements have recently forced Rolls Royce to announce plans to shut down its jet engine plants for two weeks in the summer in order to minimise losses.
Regardless of their experiences during the pandemic, most manufacturers realise that improving supply chain resilience has become a priority and could help to boost their performance financially and operationally in the year ahead. But where should they start?
Instead of using traditional enterprise resource planning (ERP) systems, which are typically based on ‘steady-state’ models, to inform a company’s operational structure, manufacturers need to take a more agile approach, based on real-time data. Data-based insights can be used to map demand and inform the development of a new operating model. For example, manufacturers may identify a need to speed up the supply chain in order to reduce lead times and compete for market share, but the only way to achieve this is to invest in advanced technologies, such as digital twin technology, robotics or AI systems. Using data analytics to guide investment decisions can help to future-proof the business and support its growth strategy.
Another key step to improving supply chain resilience is to get closer to the end user – the customer. Manufacturers must make sure they know what the customer wants, how this is changing and how it might evolve in the future. Deep-level understanding of market trends and regulatory drivers will enable them to configure their supply chains based on the right parameters. For example, car makers need to consider how a shift in the way people consume energy in the future could impact their business model as they start mass producing battery electric vehicles (BEVs). In many cases, underlying trends in consumer behaviour and preferences have accelerated during the pandemic and OEMs must ensure they don’t get left behind.
Large or multinational manufacturers, which typically come with complex supply chains and more traditional management structures, are likely to find transitioning to a new operating model more challenging than smaller, more agile businesses. For example, environmental concerns have become more important for many consumers during the pandemic, and some manufacturers are already responding to this by adopting green technologies and innovating to find new ways of enhancing the environmental benefits of their products. Similarly, investing in skills development could prevent manufacturers from falling behind in areas such as the digitalisation of their business model.
As well as considering how society is changing and building a business that is smarter and better placed to succeed in the future, OEMs need to be thinking tactically about ways to minimise risk whilst protecting enterprise value. For example, there may be an opportunity to extend payment terms or put in place dual sourcing arrangements to help ringfence supplies of critical components. Nearshoring operations could help to decrease operational risk by improving transparency and facilitating close supply relationships. Alternatively, applying a strategy of best country sourcing could present low-risk opportunities to buy components or materials more cheaply.
With accelerated disruptors set to impact many markets in 2021, manufacturers can’t afford to stand still and need to adopt a mindset that will enable them to rebuild a better business model. By gaining access to meaningful real-time data, they can start investing in value-driving technologies and configure a supply chain that is more efficient and better equipped to overcome the challenges that lie ahead.
Nick Harrison is partner, and Paul Cooper is director, at management consultancy, Vendigital.