Three Ways to Cut Down on Material Shortages — Today
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How many times have you experienced the end-of-the-month blitz? You know what we’re talking about, when you try to (somehow) ship everything you can over the last few days of the month to hit your numbers? If you’ve ever stepped back and asked yourself why this happens, you’ll likely have blamed material shortages at one point or another.
These shortages are a widely known epidemic in the manufacturing world. And, while there’s no magic bullet when it comes to solving them, there are a few high-impact areas in which most manufacturers can improve.
A Sales, Ops Balancing Act
The best performing supply chains in the world use some form of sales and operations planning (S&OP). Entire books have been written on S&OP, so this article won’t attempt to cover the entire system. Instead, we’ll focus on a part that is frequently missed: the balance between the “S” and the “OP.”
Most organizations focus heavily on operations planning by looking at usage history, operational scheduling, procurement practices and more, yet they don’t put the same effort into sales planning. You may accept a lack of customer forecasting and insight from your sales team for a variety of reasons, but if you want to improve service rate and reduce shortages, you have to start improving your planning — today, if possible.
No matter how terrible your forecast accuracy is, you should start measuring this forecast and begin creating the expectation of accuracy. The ideas to drive improvement will start flowing. The more balanced your “S” can become with your “OP,” the fewer shortages you’ll have.
Supply Management: A Team Effort
Great suppliers are hard to find, which makes an effective supplier management strategy extremely critical. Too many manufacturers only talk to their suppliers when they place an order or when something goes wrong. Much like a great employee, the better you inform your supplier, the better they will perform.
If you’re looking for effective ways to get started with your supplier, keep the following in mind:
- Share your strategy
- Develop and share performance metrics
- Host regular, face-to-face business reviews
- Communicate often
Remember: The more you make your supplier a part of the team, the more they’ll be able to help in your efforts to eliminate material shortages.
Don’t Be Blinded by Costs
Cost, cost and cost — these are the top three priorities of most supply chains. Unfortunately, focusing only on cost can lead to increased lead times, lower-quality products, less responsive suppliers, increased labor costs and more. That’s why many world-class manufacturers are moving from low-cost country sourcing to best-value sourcing. The latter looks at the total cost of ownership (or, TCO) and the value brought from the relationship.
While sale price will always be a dominant factor in the equation, today’s best practices suggest you should look at other factors. These can include landed cost, lead times, supplier flexibility, risk management and the supplier’s ability to improve.
Taking all these factors into your supply chain design will create the flexibility to prevent shortages and increase margins. Shortages will never completely go away, but the ability to reduce them can give you an advantage over your competitors.