Complex supply chains are notoriously difficult to manage, but new technologies are increasing transparency and allowing innovative manufacturers to avoid costly disruptions.
Traditional methods of managing these linked systems are cumbersome and reveal problems far too late. These methods include implementing a supplier qualification process, including strong penalties for poor performance, and hiring talented staff to manage the supply chain. Despite these standard approaches, manufacturers are continually caught off guard by poor input quality and late deliveries.
The compensating strategy is painful: Increase inventory to protect against supplier mistakes, switch suppliers, or suffer delayed production and late deliveries of your own. As the number of suppliers grows, this strategy becomes increasingly expensive and unsustainable. Working punitive clauses into contracts is another pre-emptive strategy, but even this does little to mitigate problems when suppliers fall into a downward spiral.
Suppliers often conceal problems, including quality issues, production issues, staff turnover, inventory depletion, etc. by undertaking heroic efforts to keep deliveries going. Sometimes they are able to clear their problems without customers ever knowing how close to the brink they came. But more often, the disruption spins out of control and impacts the customer with little warning.
Arguably the most watched indicator is on-time delivery. A recent survey of manufacturing stakeholders revealed delivery performance was the single most important variable when evaluating new suppliers. However, on-time delivery is the final metric representing the cumulative operations of a supplier. It will not show a supplier beginning to spiral out of control, and relying on it to make an informed assessment of supplier readiness has been a historically persistent challenge. Airbus is just one recent example of an original equipment manufacturer that has suffered serious consequences due to supply chain delays: the European plane maker has scrambled to meet quotas as a result of late deliveries of engines, seats, and toilets.
OEMs can continue the status quo with its inherent limitations, or they can adopt new disruptive technologies that are illuminating dark corners of supply chains. Digital tools contractually mandated and installed at supplier sites offer the ability to develop an early warning system. Imagine knowing what your key supplier’s production efficiency was in any given week, what their scrap rate was, or how many days per week they were producing parts.
For manufacturers with numerous suppliers, these critical metrics are continuously updated and collected on a dashboard at the OEM, which shows the OEM supplier management team each supplier’s machine performance, downtime, efficiency, production rates, scrap rates, and more. Trends in these real metrics allow OEMs to more accurately predict whether a supplier will struggle or will be able to comfortably meet production quotas. This allows manufacturers to intervene and support suppliers before a crisis develops. As a result, fewer personnel are required to manage the supply chain with greater effectiveness.
While this digital approach does not completely eliminate the need for the tried and tested strategies of the past, it does help to overcome the inherent limitations of those strategies. Emerging technologies allow for a simple, noninvasive way to monitor supplier performance.
Ultimately, improved transparency empowers OEMs to prevent problems before they occur, thereby boosting their own on-time production and reducing the amount of working capital tied up in large stacks of inventory. By increasing certainty and reliability, this automated approach pays for itself.
Ambrose Conroy is the founder of Seraph and a member of its executive team. Seraph works with clients to transform, relocate, or restructure their business operations, and its team regularly works with lawyers as expert witnesses. The firm frequently works with leading international companies in the automotive, aerospace, energy infrastructure, and medical technology/device sectors. Seraph is currently developing a software suite to provide enhanced visibility into complex supply chains.