Category Archives: Manufacturing

Consumer Dynamics are shifting like never before. But how does that affect Procurement?

Beyond the obvious, of course. But let’s backtrack.

A recent article over on Fortune noted that consumer dynamics are shifting like never before while purporting to give us some insights from Executives from Instacart, Atlassian, Nordstrom, and Black & Decker [who] share their strategies. However, the insights it shared related to the challenging technology environment the companies, and teams, face daily and not the consumer market in general, which is a very important topic not covered much by most of the publications and analysts that focus on how great the technology (especially AI-backed technology that may or may not work at all) is, but not how it helps you address the consumers that your organization is in business to serve.

Now, it’s easy to track change in demand if you have a good POS system, a good inventory system, at least weekly (if not daily) synchs, and a good DiY (Do-it-Yourself) Analytics system with baseline trend analysis capabilities that can signal changes in demand, the need for rapid reorders to prevent stock-outs, and increasing changes in demand as a result.

It’s not always as easy to track why. Sometimes there’s a strong correlation between the sales and a particular campaign, between the sales and a sustainability initiative, between the sales and recent price decreases in the product line or price increases in a competitor’s product line, or between the uptick in sales and competitor stock-outs, and in this case it can seem obvious, even if it’s not. For example, the campaign may have had nothing to do with it, it could have been the result of a single influencer promoting the product. The sustainability initiative may have had nothing to do with it, as customers may have known it would only impact the next generation of the product. The price decreases may have had little to do with it because it may have already been one of the lowest priced products available at the time as well as the one with the best brand reputation. The competitor stock outs may not have had anything to do with it because those might have been the higher priced products that were only stocked in low quantities anyway.

Moreover, even if you can determine the why with some statistical confidence, that still does not identify the underlying root cause as to why customers reacted to the campaign, the sustainability initiative, the price decreases, or the stock-outs. Are customers shifting towards your brand, adopting a preference for certain products, responding to certain messaging, or just veering away from certain competitors (or at least certain competitor products).

More importantly, how can you predict these trends early, when they are just starting, so that you can make the appropriate Procurement decisions in time to meet the shift in demand better than your competition. Certainly predictive trend analysis (using traditional machine learning fine-tuned to your problem domain) will help, but only if you can identify the right data sets and indicators, which will also mean being able to detect shifts in early sentiment early. So sentiment analysis (not overblown generalized error-prone Gen-AI) will also help.

But that’s just the beginning. Technology indicates possibilities, maybe even probabilities, but not guarantees. For that, you will need a human based assessment of the situation. And possibly an anthropological one. If you want to get ahead, you will need to think ahead of the crowd.

Source-to-Pay+ Part 7: Multi-Tier Risk

In Part 1 we noted that Risk Management went much beyond Supplier Risk, and the primitive Supplier “Risk” Management application that is bundled in many S2P suites. Then, in Part 2, we noted that there are risks in every supply chain entity; with the people and materials used; and with the locales they operate in. In Part 3 we moved onto an overview of Corporate Risk, in Part 4 we took on Third Party Risk (in Part 4A and Part 4B), in Part 5 we laid the foundation for Supply Chain Risk (Generic), and then in Part 6 we addressed a major supply chain risk: in-transport.

As part of (generic) supply chain risk, we highlighted multi-tier risks that arise when multiple suppliers need to process materials, make sub-components, build components from those sub-components, and then assemble those components to make your product. When it takes 10,000 suppliers to make your product (which is the case with some complex electronics products), the risks are beyond what most minds can comprehend. Multi-tier risk management systems for direct supply chains must address a number of specific requirements outlined in Part 5.

Capability Description
Connections & Relationships It is incredibly important to keep track of all of the connections in the supply chain, not just the links that represent the paths of raw materials from the source into the products that your tier 1 suppliers supply you. You need to know who else your suppliers supply, any risks that poses to you (if your competitors have more influence and can steer the direction, process, and quality of the supplier); who supplies your suppliers, any risk that poses to them, and thus to you; who owns your suppliers, and any risk that creates to your organization in different countries of operations due to sanction lists; and who your suppliers contract out too, and any risks that may pose.

It is thus critical that a multi-tier supply chain risk management solution support connection graphs that can be re-oriented around any entity at any time for a quick inspection of risks posed by that entity and all entities it may in turn affect. It is also critical that the solution support drill-in at each entity for deep insights and analysis.

Bill-of-Materials The platform must support multi-level bill of materials (BoM) support. You can’t track the full supply chain if you can’t track the full product inputs all the way down to the raw material inputs for each component, sub-component, and primary part. You also need to be able to trace any product with an issue down to the supplier who made the part/sub-component/component with the issue.

The platform must make it easy to define, maintain, alter, and otherwise work with the bill of materials. It shall be easy to instantiate an instance for each supplier of a product and trace all the way down to the mine or fields the raw materials come from, or the recovery/recycling plants if the materials are being re-used in a sustainable fashion.

Manufacturing Visibility The visibility doesn’t stop at the BoM. It begins at the BoM. For each product you buy from each supplier, you need to track the supplier’s production capacity at the plant, as well as how that capacity is influenced by other products, and switchover time. (If you buy multiple products that use the same production line, then you can’t get full capacity of both.) It must be easy to see all manufacturing information related to a plant of a supplier, how many products it is associated with, and what tradeoffs are in effect when you order a specific product from a supplier.

The platform must be capable of calculating the units per hour/day/week, the switchover time, and how many units of each could be produced given a requirement for one product. (And the same must hold true for three or more different products/configurations.)

It’s critical that the platform allow for easy definition and manipulation of BoM instantiations, supplier plant nodes, manufacturing details, production line capability, and associated timings.

Public vs. Private Differentiation The platform must be able to maintain the distinction between public and private entities, specific to the countries the entities are located/headquartered in, as well as the different types of information the organization needs to keep on both from a risk perspective. In some countries, public entities are more rigorously regulated and in other countries, private entities could be more heavily regulated. The platform needs to allow a buying organization to ensure that the entities are acting appropriate to their type. Also, investments and sanctions can sometimes work differently depending on entity type.

The platform must be capable of tracking entity type, associate the entity with the relevant regulations and requirements based on the type, and alert the organization if anything changes with respect to the type or any change that could impact the type classification.

Predictive Sub-Tier Mapping A supplier may not always disclose it’s sub-tiers. In such a situation, the platform must predict which sub-tier suppliers are being used based on product type, raw material, raw material availability, available transport networks, and so on.

The platform must contain an adaptive algorithm that learns as new information becomes available, continuously updates its knowledge from market data feeds (import/export logs are often public information), and integrates with third party (commodity) markets that can predict changes over time.

Strengthening Supply Chains is Simple …

It just takes proper people, planning, processes, and platforms. But let’s backtrack.

Forbes recently ran an article on how companies can improve supply chain management to strengthen business operations in 2023 which gave some great advice on various ways a business can improve their supply chain management, which included the following suggestions:

  • align partnerships to prepare for supply chain disruptions,
  • prioritize Learning & Development when it comes to automation in quality-focussed procurement, and
  • look ahead

… and these are really great suggestions, but they skip the starting point — and if an organization does not start off right

  • you’ll never be able to align the wrong partnerships,
  • no Learning & Development program will deliver fast enough if your people don’t have the right educational and experiential background, and
  • looking ahead will be impossible without the right platform.

You see, before you can jump into partnerships and learning and development, you have to go back and make sure you get the basics rights.

  1. Define proper procurement processes, including what will be strategically vs. tactically purchased, this will help you
  2. Hire the right people with the right backgrounds for the categories — not necessarily experienced buyers, but possibly experienced engineers with the insights to know what is needed, what makes a supplier who can meet the needs, when the cost models/quotes are accurate, etc. as it’s often easier to teach an engineer proper purchasing than teach a business grad the basics of electrical engineering
  3. Select the right platforms, which will allow you to qualify and select the right suppliers with whom you can build productive partnerships and
  4. Build the right models, which will allow you to do proper predictive analytics for demand, supply, and related planning

When you get the foundations right, it’s easy to build on those with partnerships and advanced training (to make your good buyers even better), but if you don’t have the foundations right, any attempts to polish partnerships and buildup better buyers will be for naught. (For more on foundations, see past articles on this blog, including The 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay.)

Can the UK Help American Manufacturers Shift Their Sourcing of Critical Materials?

Maybe, but not in the way this recent article in SupplyChainBrain suggests. The article, which really had the doctor scratching his head, referenced the Atlantic Declaration and how the United States and United Kingdom are resolving to build resilient, diversified, and secure supply chains and, more specifically, bolster the U.K. as a source of five critical minerals: cobalt, graphite, lithium, manganese, and nickel.

While we need a secure supply of these minerals in the Americas to ramp up and sustain EV (Electrical Vehicle) production, as the article also notes, the UK is the world’s 12th largest exporter of cobalt, 16th largest of graphite, 12th largest of manganese, 11th largest of raw nickel, and doesn’t even make the charts on Lithium. It can ramp up all it wants, these numbers aren’t going to change (because every other country is ramping up too), and the bigger countries (likely) have deeper reserves.

Plus, the UK, with very dense cities like London and limited land mass, is in desperate need of EVs itself to keep its smog levels down, so how much can it really afford to export?

The reality is that the UK can help by working with the US to identify non-China sources of these materials, use their collective bargaining might to secure supply at a sustainable cost, and help manage suppliers who are closer to / more used to working with the UK than the US. Similarly, since the UK is a small island and will likely need to import these vehicles (since the local market size doesn’t make an automotive production plant an economical investment for most automotive brands UNLESS a significant part of the UK market would switch to that vehicle), it can also guarantee a market for any suppliers that it secures those materials on behalf of.

Plus, if UK and US companies team up, they can split the effort and share their knowledge and best practices, and the more creativity you have to solve the upcoming challenges, the better — and chances are that the UK, who no longer have the weight and support of the EU backing them up, needs to be very creative these days.

Anyway, while we applaud the joint effort, it’s doubtful that the UK is going to solve even a fraction of the US need raw material wise. But human capital wise, they are even more incentivized than the US to solve these challenges.

A Slow Cautious Approach to Pulling Out of China May Be Justified …

… but the justification has NOTHING to do with geopolitical events or economic factors, as suggested by this recent SCMR article. First of all, those are always in flux. Secondly, neither of these factors are the ones that could be limiting your ability to peel out.

There are two primary factors that could be limiting your ability to peel out of China:

  1. available production capability
  2. source material availability

And these are the only factors you should be considering when you are considering how [do] you reconfigure the global supply chain. Because, unless you are selling in Asia, you HAVE to get out of China if you want stable supply streams.

Available Production Capability

First of all, are there alternative near-shore plants? If not, you’re stuck until you (co-)invest in one, get it built, get it up and running, and verify the quality is acceptable. If there are, can they produce the products you need in the quantities you need, or at least a reasonable percentage? If so, are the quality and service levels sufficient. If there are three or more near-shore suppliers that can collectively meet your needs, you shift a considerable amount of your award to them immediately (depending on existing contracts, the time-frames for the suppliers to fully ramp up to support your business, and the time-frames your organization needs to get ready to support the shift) and start the process of shifting all of your award to them.

Source Material Capability

You also have to consider where the raw materials are coming from, and how easy it will be for your suppliers to get sufficient stacks of the materials you need in steady supply. For example, if you need lithium-ion batteries produced by current processes, you need cobalt. 73% of today’s cobalt comes from the Democratic Republic of Cobalt (DRC). The DRC has considerable trade agreements with Qatar. So while the country has bilateral trade agreements with over 50 countries, its relationship with Qatar could cause you problems if you want to use a producer in the middle east NOT in Qatar if another diplomatic crisis (like the one in 2017) arises.

Also, China is the largest producer of grains, gold, coal, rare earth minerals, and two hundred (200) plus other materials, components, and products, so if your production depends on any of these materials, components, or products, you need to make sure your suppliers are located in countries who have good relations with China or have already locked up enough secondary sources to guarantee your product production will be uninterrupted.

That’s it. Yes, you have to consider the economics, because you can’t pay 50% more and not seriously upset (and lose) your (current and potential) customers with the price increase that will result, but with proper investments in new processes, equipment, and talent, costs can be reduced anywhere in the world, and all it will take for the potential supplier to make these investments is enough guaranteed business from you. (So make it so!)