Globalization has been a significant factor and influence on economic development over the last few decades – and in manufacturing, it will have certainly played a part in your success.
You will recognize that global trade is based on a paradigm of very long chains of globally distributed suppliers. You will also understand that a finished product is an assembly of various parts, with many of the parts manufactured outside your walls.
Let us look at an American-based vehicle manufacturer, for example. As many as 70% to 80% of individual parts that go into the manufacturing of a car are built externally, often in different parts of the world, such as China and Europe.
That is why a pandemic such as coronavirus can be so damaging to a manufacturer. Among the issues that could affect you include a shortage of materials, of labor, of sourcing, and logistical challenges.
Even before coronavirus hit, global supply chains were being affected by the trade war between the US and China, which forced US companies to restructure their supply chains so that they did not place so much reliance on China.
Jeremy Goodwin is the CEO and founder of SyncFab, a company that develops blockchain applications for decentralized supply chain management. He said that coronavirus has highlighted issues in manufacturing’s reliance on long distributed supply chains, especially when a rapid response was needed.
Goodwin said, “Take medical device manufacturing, for example, in the production of ventilators. A ventilator is comprised of around 300 parts, many of them electronic. In the past 10 to 20 years, China has gained a strong foothold as a competitive supplier for smaller electrical components.
“The coronavirus pandemic created a real bottleneck in the availability of the critical components from China meant to go into the assembly of a finished ventilator. This would result in a complete redesign of the ventilator, and a complete re-sourcing of those individual components that weren’t readily available from these Chinese suppliers.
“There is a complex web in these supply chains because of a tiered structure and intermediaries between manufacturer and suppliers, as well as layers of quality controls, and annual inspections which are industry standard.”
Before coronavirus and any trade war, chief procurement officers (CPOs) in the manufacturing sector were additionally unable to convey full confidence in their procurement teams and that vital ability to source the external parts they needed for their products.
In Deloitte’s Global Chief Procurement Office Survey 2019, more than half of CPOs believed procurement risk was on the rise, fueled by the economic downturn. This figure would arguably be significantly higher now.
The research revealed that CPOs last year were focused on achieving competitive bidding with new suppliers and contract renegotiation with existing suppliers to achieve cost reductions and reduce financial risk.
Re-evaluating and redesigning your supply chain
Coronavirus has highlighted complex issues with today’s large and unwieldy supply chains. It is a time of digital transformation and shorter time-to-market requirements. You might well be asking yourselves what kind of solutions are out there that will shorten your supply chains and make them more responsive, through access to transparent data from suppliers.
One way to do this isContinue reading