Materials and Capacity: You need both to be able to deliver products to your customers. When most supply chain professionals are addressing flexibility in an outsourced manufacturing environment, the conversation usually centers on components. While components are a key element, without the capacity to transform the parts into a product, the flexibility at the component level does not do you much good. Addressing capacity is especially important when you consider our current times. Companies have been through one of the worst economic downturns in recent memory and they are being very cautious about adding capacity. That means you are likely to be competing for capacity for an extended period of time. In the following paragraphs, we highlight some of the steps that you can take to ensure that your suppliers’ capacity, or lack thereof, does not get in the way of your revenue plans.
Is there a problem? Although we see indications of risk in the market in general, you need to find out how your supply chain is affected. This means reaching out to key suppliers and having the conversation. This is especially important for your contract manufacturers, your ODMs, and your suppliers of key custom components where it is more difficult to second-source. Ideally, your supplier would have a set of readily available reports that shows the current capacity situation and whether there are areas that are capacity constrained. If that type of information is not available, then you can still ask for qualitative information about where the supplier sees constraints or queue building. It is important to understand the specific process areas and where they fall within the product flow because this information could alter how you address the issues.
What is the outlook? Once you have identified a problem, the first question you need to ask the supplier is how they are planning to address the gap. If the supplier has a detailed plan that looks reasonable, then you may only have to look for workarounds in a narrow window until the new capacity comes on-line. You would like any plan to include the timing and specifics of the planned changes, the impact on capacity load, and the post-improvement outlook. If there is no plan, or the plan seems inadequate from a scope and timing perspective, then you have to take action.
Is there a way out? Although we cannot say which mix will be best for you because of the unique nature of each supply chain, the solution will probably include some or all of the following.
Be the squeaky wheel. Many times the squeaky wheel does get the grease – by staying in front of your supplier and staying on top of the build schedule for your products, you can ensure that things keep moving.
Tell your supplier what’s important and what’s not. It may be that not all of your products are of the same importance to your company. You may be able to prioritize your builds so that the capacity gets used on the products that have the most value to your company. It is better for you to make this decision and be clear about it rather than having your supplier guessing.
Look for opportunities to fill the voids. Even though capacity is short, you may be able to find narrow windows where there is a lull in capacity load. You might be able to avoid part of the capacity crunch by moving builds in or out to align with these valleys.
Leverage your purchasing power. If you have significant influence with the supplier, you may be able to get capacity allocated to you in return for goodwill or some other advantage for the supplier. This is a time where a "most favored customer" clause might be helpful.
Be willing to take calculated risks. Even if you are not a big fish with the supplier, you may be able to negotiate to reserve capacity. You might have to take some calculated risks like guaranteeing a minimum business level or maybe paying a premium for builds beyond your original forecast.
Use buffers. You can use buffers to help create a cushion between an intermittent capacity problem and the rest of your supply chain. The key is to keep the buffer in some form past the constrained process.
Look for short-term ways to add new capacity. Since suppliers will be cautious about making make significant investments, you may have to explore incremental ways to add capacity like soft tooling, expanding shifts, improved utilization of the constraining process through precise management.
As you are working to protect your revenue stream, remember to address capacity issues at the same time as you address part issues. In the end, it is the combination of the two that gives you the product flexibility that you need. If you are interested in further analysis of your supply chain risks and potential solutions, Symphony can provide unique expertise to help. Feel free to contact us at info@symphonyconsult.com.