James Woodhead talks to New Electronics about the need to build greater business resilience through supply chain rationalisation.
Covid-19 and the associated global health crisis have undoubtedly brought significant challenges to a plethora of businesses across the world. The pandemic has impacted every business sector, some more extensively than others, whether positively or negatively, but a key output has been the scrutiny of companies’ long-term resilience.
“A pivotal area has been the streamlining of supply chains with many looking to rationalise their supplier lists, focusing primarily on relationships that truly add value rather than simply being part of a tick box exercise,” explains James Woodhead, Manager of Projects Division at Pacer, an international specialist supplier of optoelectronic, Display and laser solutions.
“We truly understand the importance of added value in the supply chain. Fundamentally, it’s about all the elements and challenges that are placed on us by our customers. They are looking for significant flexibility and proactivity on top of the usual elements of good pricing, customer service and a willingness to go that extra mile.”
Flexibility is critical to Pacer, according to Woodhead.
“Customers want us to be flexible and agile, so we really need to mimic such an approach in our supply chain. Good communication is also important. Some large corporate suppliers, however, don’t always appear to share this approach; impersonal communications and sudden price increases can damage the relationship and discourage customers from trusting their suppliers.”
For Woodhead it’s important to work with companies where, “We’re not ninety percent of their business, but at the same time are not a tiny fraction of it. It’s about finding someone who can dedicate the time and effort to our projects and cares enough to go that extra mile.”
With rationalisation continuously looming, however, he admits that there is a need to look at what triggers it. Unsurprisingly, the main catalyst is cost, and there are many reasons for that cost.
“It could be that the supplier is strategically moving away from a product or service, so they then pass on higher costs because they don’t really want that business. It could be that suppliers aren’t investing in a specific technology; their resources therefore become obsolete, and the company is unable to produce elements as efficiently as everybody else.”
The process of removing “dead wood” may also result in suppliers not investing in their processes, making their score cards poor, which in turn reflects on their vendor rating and ultimately disqualifies them. Another significant factor would be the rationalisation of the number of similar suppliers.
“For example, you may have 20 different plastic injection mould suppliers where five may be enough; otherwise, you risk spreading your volume thinly across too many suppliers instead of consolidating across fewer companies which would result in a better price. It’s all about balance.
“Another way to rationalise is to become involved in strategic partnerships, jointly developing a component for example and receiving it exclusively for a number of years for an agreed price before it goes on the general market. This, however, would generally only happen with very large companies.”
Going forward, technology will undoubtedly have a significant role to play in the supply chain in general, and its rationalisation in particular, Woodhead suggests.
“To ensure future supply chains are efficient, we will probably need to follow the model of the automotive industry, which is regularly cited as the gold standard along with health, defence and aviation.
“The automotive industry pioneered the requirement for very agile supply chains which can work off ‘just in time’ deliveries, making everything as efficient as possible, while not handling stock for longer than is necessary. “This is where digital transformation and artificial intelligence come to the fore with computer modelled assembly and robotics. However, despite such an approach reaping many benefits, the recent component shortages have exposed challenges within this type of automotive supply chain model with many car plants across the world having to close. The lack of any buffers has been highlighted as a weakness so caution is required but there are elements of this approach that we will want, or need, to emulate. Furthermore, it can be argued that these initiatives are still really for the big players. For some, this may be the only way to compete.”
Successful supply chains
Successful supply chains, of whatever size, will be the ones that embrace an agile approach, ensuring that they invest in technology that guarantees they stay competitive and are being duly considered, Woodhead argues.
“Is there, however, a rationalisation equation that looks at the correct number of suppliers, with the appropriate performance, price, reliability and sourcing? There are companies that will Monitor their supply chain extremely closely with regular benchmarking, detailed vendor ratings based on multiple KPIs along with ensuring environmental and corporate responsibilities are being upheld.
“The correct number of suppliers really depends on the project size. For a big project, we may use a couple of suppliers of the same part/material in order to limit risk. The medical and defence suppliers tend to stick to consistent, reliable, smaller supply chains if possible and can find it extremely challenging and costly if they were to change those suppliers’ mid-project. They have very strict approval lists and if a supplier is designed in, but then changed, there are knock-on effects, and in extreme cases they would have to go through a complete FDA resubmission for their product.”
Supply chain rationalisation is happening, but it is still a balancing act. If you go too far one way, you can rationalise to the point where the quality or value piece is then being questioned or becomes a deal breaker, according to Woodhead. This is a great reminder that you need that chain – a list of suppliers, however big or small, depending on your size, that deliver that quality and added value piece.
“It’s important to avoid technology for technology’s sake from the supply chain perspective. A platform needs to add value and you must always be asking that question as to whether it does or not. The adoption of new technologies is certainly something that we are actively working on to future-proof our own business. At the heart of everything we do is the value-add piece and aligning more closely with Solid State Supplies will give us a much broader offering. The technology goal posts are changing in the industry, but we will evolve with them.
“At Pacer, we are keeping a close eye on technology and what’s adopted in the marketplace, such as Amazon-style purchasing, or huge warehouses selling high end products. Elsewhere, we are supporting vendor managed inventory (VMI), where the supply chain builds for, and delivers to, customers – but retains ownership of the goods. The customer only pays for inventory as they draw it down out of their warehouse to be used on the line – a prime example of supply chain flexibility. The question is whether elements of commoditisation could go too far one way.”
Building greater business resilience through supply chain rationalisation is not just for now but for the future.
“Undoubtedly, there will be issues and challenges to overcome,” concludes Woodhead, “and Covid-19 will remain a challenge for the months ahead and there are likely to be other challenges in the future that will impact our industry. We need to stay one step ahead and ensure we’re ready for those changes.
“At Pacer we believe that we are in a good position and can offer an important balance between cost, technical expertise and value, embracing rationalisation in the supply chain, while building business resilience. No doubt there is still more to do but we are confident that we, as well as companies like us, will not simply survive, but thrive.”