Before the COVID-19 pandemic, many manufacturers’ supply chain management efforts focused on reducing costs and increasing efficiency, in some cases at the expense of flexibility and resiliency. But the pandemic highlighted the vulnerability of global supply chains to disruptions. Such disruptions can be caused not only by public health emergencies, but also natural disasters, political unrest, economic volatility and other risks.

To prepare for future disruptions, manufacturers should reexamine their supply chain approaches and consider the following three strategies.

1. PFEP

A plan for every part (PFEP) isn’t a new concept, but it’s taken on added significance post-pandemic. A PFEP is a robust, end-to-end plan for all the parts that make up your products. Start with a detailed analysis of the demand for all parts: how and where they’re sourced; how much they cost; and how they’re made, packaged, stored and ultimately delivered.

This information allows you to measure the importance of each part to your manufacturing process. Then you can assess the risk associated with potential disruptions of that part’s supply chain and develop strategies to mitigate the risk.

For example, if a part is particularly critical, you might keep more of it in stock (despite the increased cost) to ensure that you can meet customer expectations during a supply chain disruption. Another approach to consider is vertical integration (that is, bringing production of the part in-house). This alternative gives you more control over the supply chain.

2. Diversify your supply chain

Just as investors reduce their risks by diversifying their portfolios, manufacturers can reduce their risks by diversifying their supply chains. Develop a mix of suppliers of different sizes and in different geographical regions to mitigate the risk that the unavailability of one supplier will devastate your business. If a natural disaster or other event forces a supplier to close its doors or temporarily suspend its operations, other suppliers will be available to take up the slack and minimize disruption to your manufacturing process.

3. Strengthen supplier relationships

In every supply chain, it’s critical to develop and maintain strong relationships with your suppliers, especially during challenging times. Good communication with your suppliers will help you stay informed of developments that affect the availability of key supplies. Then, you can take steps quickly to respond to any shortages.

An ounce of prevention

As you may be acutely aware, supply chain issues continue to be a major problem for a variety of industries — especially manufacturing. Contact us for help in reviewing the strategies discussed above. We can help your manufacturing business enhance its supply chain resiliency and improve your chances of weathering the next supply chain storm.

© 2022

John Krizansky

John Krizansky, CPA
Principal
john.krizansky@hwco.cpa