Over the last couple of weeks we posted an “alternative medals table” which illustrated, among other things, the breadth of locations that UK manufacturers export to. This reflects the highly interconnected nature of modern manufacturing.
And it is not just manufacturers' customers who are overseas. The vast majority of manufacturers have overseas suppliers too. In the last three years nearly a third of UK manufacturers increased the number of overseas suppliers they used.
There are, of course, advantages to using overseas suppliers, but with more complex supply chains comes more vulnerability. Recent events such as the Japanese tsunami highlighted this – globally the automotive sector was badly hit – but it is not just ‘acts of god' that can disrupt supply chains. Many manufacturers also experienced significant disruption as a result of the last global downturn, and the macroeconomic environment remains a concern.
Supplier failures and supplier disruption have real business implications, such as loss of orders, quality failures, or damaging relationships with customers.
One manufacturer we spoke to said that the inability of a major supplier to return to pre-recession production levels in response to higher demand meant the company was unable to respond with the speed and quality their customers expected.
However, manufacturers are not sitting back. In the last two years only 6% of companies said they had taken no action to improve supply chains. Many manufacturers proactively manage risk, with around one third of companies saying they view monitoring supply chains as business critical.
One method manufacturers are using to improve supply chain performance is increased collaboration with suppliers.
One company we spoke to said that not only did this improve quality, reduce prices and lead times but it also meant that they had better visibility of potential problems, such as capacity constraints. Another manufacturer said that increasing collaboration has enabled them to get things “right first time”, improving delivery times and reducing costs.
Some manufacturers are also looking to source components from more than one supplier
Multiple sourcing increases supply chain resilience, but it is not straightforward. Often inputs are complicated and each supplier will need to meet precisely the same standards. Companies who source successfully from more than one supplier often also have long-term collaborative relationships with these suppliers.Another method of improving supply chain performance is to bring production back in house, or increase the use of local suppliers.
Our survey showed that two fifths of companies were bringing some production back in house, and one quarter increased their use of local suppliers.
A company we spoke to said that bringing production in house had taken two years of preparation, including hiring and training additional employees, but they had seen benefits through cost savings, quality improvement, and reduced lead times. However there can be disadvantages to bringing production in house. Another manufacturer commented that this had necessitated an extension to their factory, which eats into margins.
The results of actions to improve supply chain performance pay dividends for companies: two fifths of companies saw improved customer satisfaction and decreased costs.
Working with supply chains will be key to manufacturers' ability to deal with any future disruptions that come along.