It’s a tough time for many manufacturers; increasing competition from markets with comparatively low labour and input costs is putting pressure on many local manufacturers. Some sectors, such as automotive manufacturing, are slowly disappearing from large western economies – only recently, almost 100 years of car making history came to an end in Australia as General Motors closed its last factory in that country. Better supply chain management isn’t a panacea for the challenges that the manufacturing industry faces, but it’s a good place to start.
When it comes to procurement, effective supply chain management means that ingredients and raw materials arrive at the factory before they’re needed. A business that adopts a lean manufacturing philosophy might challenge this assumption a little, but there will always be a supply of raw material at the factory ready to be processed. Failing to make sure that there’s enough inventory in the warehouse is one of the biggest factors affecting inventory management; getting this wrong can see entire production lines shut down and staff being paid to do very little. Even worse, an unexpected inventory shortage can result in your business failing to meet commitments to customers, compromising your image as a reliable supplier and potentially costing you future business.
Best in class inventory management software and a fantastic procurement team are both key factors that affect inventory management, but neither can keep the factory running if a key supplier fails to meet a major supply commitment. That said, there is plenty that your business can do to prevent supplier failure and to manage the impact of any failure events on your business. Firstly, make sure to keep track of supplier performance; this sets an expectation of timeliness and allows you to respond to issues before they bed in. Secondly, even a reliable supplier is likely to make mistakes from time to time, so work with several suppliers to build in supply chain redundancy.
Any manufacturer will know that the cost of procurement isn’t limited to your inventory’s purchase price. Keeping transportation costs low should be a major supply chain focus for most manufacturers, particularly those that produce large volumes of heavy or bulky product. Optimising the supply chain to reduce transportation costs is a great way to improve your business’ margins. This can mean rerouting deliveries, partnering with out of town carriers to use backhaul capacity or implementing strict inwards good processes to get trucks back on the road more quickly.
Integrated Supply Chains
Where does your business’ supply chain end and your suppliers’ supply chains start? For many purposes, they’re one and the same. Inefficiencies in the supply chain will affect your business, whether they occur during your operation or during a supplier’s. Manufacturers are increasingly taking a wide view of factors that affect inventory management, and this typically means operating an integrated supply chain.
Equally, lean manufacturers using a just-in-time procurement system should ideally be able to integrate placing orders with a supplier’s order management function. This means that orders are automatically processed and allows your business to immediately know whether your supplier can commit to supplying the inventory you have requested. On the sell side, key customers may prefer suppliers that can offer supply chain integration – even if your prices aren’t quite as competitive as the next-best supplier, the ability to place orders quickly and have certainty of stock levels can be a powerful selling point for time sensitive customers.
Although improving supply chain management is unlikely to turn an underperforming manufacturing business into a success story on its own, making changes to the way that a successful manufacturer procures and processes inventory is likely to provide it with a valuable competitive edge in these challenging times.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.