With OEMs already reeling from the impact of tariffs, nearly 75% of companies are reporting a disruption in their supply chain as a result of COVID-19. As the world works through the impact of the changing trade policies and the coronavirus pandemic, there are practical steps supply chain teams can take now to get back on track and plan ahead.
A survey conducted by the Institute for Supply Chain Management focused on the impact of the outbreak in China and revealed that 62% of companies report production delays, as manufacturers work at half their normal capacity. Visibility into lead times is at an all-time low, as 53% of companies are experiencing difficulties in getting information from their suppliers. Recommendations on planning for disruptions from ISM follow a logical progression:
- Diversify your supply chain
- Assume extra time for transportation delays
- Develop your long term plan now
Diversify your supply chain for materials sourcing
For most electronics production, component and materials sourcing is global, irrespective of the location of assembly factories; and supply chain sourcing will remain global. Few companies have visibility into where their electronic components are specifically produced. The most important step you can take now is to identify alternative sources before the disruption affects your production schedule. Diversifying your materials pipeline means working with your contract manufacturer to eliminate single source bottlenecks by putting alternative vendors in place. All substitutions and alternative parts take time to source and approve for production, so it’s worth reaching out to your CM early on to develop a plan. The objective should be to preserve most of your existing supply chain, but assure you have a Plan B if there are delays.
An experienced supply chain team at your CM can help you plan for disuptions, because they have relationships with a myriad of authorized distributors and suppliers. These CMs will help manage your supply chain and can quickly call on their vendors to source alternatives for limited or out of stock components, generally at the same price point or better.
“In times like this, it isn’t about moving your supply chain out of China, but about managing it proactively and making it as bulletproof as possible” said Misha Govhsteyn, CEO of MacroFab. “Having a more distributed, less concentrated supply chain improves your cost efficiencies by ensuring that your materials acquisition doesn’t get disrupted. As always, you pay a lot for emergencies, so we help our customers anticipate worst case scenarios before they incur major costs.”
Eliminate single points of failure across your factories
While diversifying your materials sourcing is fairly straightforward, eliminating a single point of failure at your CM may be a lot more difficult. CMs with multiple facilities typically assign each customer to a specific factory, and moving between factories is anything but trivial. Starting the conversation about how such a move will be executed has to happen before you see a production delay, not after. The best steps to take ahead of disruption are to assure that any CM you are working with has multiple factories available and is able to adjust your production flow quickly.
This is where digital manufacturing platforms such as MacroFab and Fictiv have a distinct advantage – these services aggregate a lot of factory capacity and assure that every job is placed in just the right facility every time. In effect, companies using this model are decoupled from their factories, while maintaining control and better visibility over their production.
According to Thomas, as much as 31% of companies reported turning down or delaying orders due to COVID-19 but your business can remain agile and avoid this outcome. Ultimately, factory portability is all about agility – the ability to continue to deliver products even under unforeseen circumstances. Digital manufacturing platforms are built for such agility by design.
Avoiding transportation delays
The easiest way to deal with transportation delays is to allocate more time for disruption across airports and global ports. But simply absorbing the long lead times is not always an option. Digital logistics platforms such as Flexport and Convoy can provide a lot of leverage and optionality, but the most impactful step OEMs can take is moving production as close to their customers as possible.
The biggest concern supply chain managers have is ability to control costs as they consider alternatives to China, but in fact digital factory networks span multiple countries, including low cost manufacturing regions. This is where nearshoring your production to Mexico or even the US gives you the most leverage. Even as the southern border is effectively closed due to COVID-19, cargo is still moving across the Mexican border, cutting the crucial transit time from Asia.
Long term, nearshoring will become more and more important, as we decouple our supply chain from Asia and formulate a strategy to become more resilient to disruption in any form.
Embracing the Digital Manufacturing Model
While all manufacturers will remain dependent on Asia for materials acquisition, formulating a continuity plan based on factory portability will help avoid disruptions. Working with a CM that uses a digital platform that serves as a “system of record” means that all manufacturing data, quotes and orders are readily available at every step in the production process. Changes that occur with each job are version controlled by tracking them from the point of order to the production facility. This level of process management enables factory portability and reduces delays.
We hope that you, your family and staff are staying healthy during this unprecedented time. Taking necessary measures to keep them healthy so that your business continues to operate with limited interruptions is critical. At MacroFab, our overriding priority is the safety of our staff, and our ability to deliver our services in a consistent and reliable way. To learn more about our production process during this global pandemic and the latest status of our network of factories, please see the latest update from our CEO.