Agility in Manufacturing: Remaking the Supply Chain
By Erin Koss, CPA is an Andersen Business Consulting Alumni (1993-1999), and CEO of Syte Consulting Group, Inc.
Agility isn't a word we often associate with manufacturing companies. In fact, a huge strength of the manufacturing sector is the ethos of predictable, repeatable processes that ensure quality and safety in the production of goods.
But manufacturing companies are also businesses — and every business, no matter the industry, needs to be able to respond to changing market conditions and operational risks in order to survive. And if the past few years have taught us anything, it's that circumstances can change quickly, beyond our control, resulting in significant disruption in all areas of life.
I’ve been thinking a lot about agility in family-owned manufacturing businesses lately, and I’m going to spend some time in future blog posts talking about different aspects of it. In this article, I’d like to talk about what I think agility means for manufacturing companies, particularly as it relates to supply chain management, and how the right ERP system is critical to helping these companies stay agile and thrive in the face of unforeseen challenges.
Agility Isn’t Always About Speed
When we talk about "agility" in a business context, we tend to envision a kind of “rapid response” philosophy — always being ready to switch things up in response to changing market demand, managing inventory carefully, and so on. Everything is done on a “just in time” basis.
But manufacturing is a different beast. The business processes and operational protocols that are necessary in a manufacturing environment don’t lend themselves to sudden, reactive changes. The result would be chaos.
Agility in manufacturing is more about flexibility and transparency.
With so many moving parts and vendors involved, speed isn’t so much an issue as making sure that the wheels stay on and the train keeps moving forward in the face of some unforeseen disruption.
For a manufacturing organization to be flexible and adaptable, it first needs full transparency of everything that’s going on — who’s doing what, which business processes are linked, and what’s the next link in the chain. (This is why we always begin our client engagements with a Business Process Assessment: we build an end-to-end view of all the inputs and outputs throughout the manufacturing process, and everyone gets on the same page.)
That’s for internal operations. But what about the dependencies that fall outside the manufacturing organization? This is where it gets trickier, and arguably, riskier.
Manufacturing businesses rely heavily on external partners and vendors for everything from parts and raw materials to transportation. In the past couple of years, the whole world experienced firsthand what supply chain disruptions look like, and for manufacturing companies, they can grind business to a halt.
That’s why I believe that building redundancy and flexibility into the manufacturing supply chain is key to staying agile and resilient in the face of unexpected challenges.
Diversification Creates More Stability
It seems obvious that having more options when dealing with supply chain vendors would lead to more reliable outcomes. Yet paradoxically, up until recently the momentum has been in the opposite direction: instead of diversification, we’ve seen consolidation across almost every industry. Dealing with fewer suppliers means less administrative overhead, and exclusivity sometimes results in better rates.
The downside, of course, is that most of your eggs are spread across just a few baskets. Relying on the same channels for supplies and transportation can place companies at a disadvantage if those partners suddenly can’t deliver. No matter how robust your internal processes and people are, you can’t easily recover from something that’s out of your control.
Supply chain disruptions aren’t only inconvenient, they’re costly. As demand exceeds supply, prices go up — and they’re passed down along the chain. Transportation challenges are also still a problem, with a shortage of truck drivers on the one hand, and bottlenecks at ports of entry on the other.
Clearly, manufacturers need some mitigation strategies to protect themselves — and remaking the supply chain is high on the list. Manufacturing businesses will need to vet additional suppliers, for example. They may also need to go global for these new partners, or conversely, get more creative domestically, and work with smaller players than they've been accustomed to.
According to research from Deloitte, 41% of manufacturing CEOs plan on adding or diversifying suppliers in existing markets. And 53% are looking to enhance data integration for better supply-and-demand visibility and planning.
That last statistic caught my attention, because I’ve seen how technology can play a really important role in helping manufacturing companies become more agile and resilient. And when it comes to the supply chain, the right ERP solution lends itself to better vendor relationship management.
An ERP System Boosts Manufacturing Agility
Agility in manufacturing is highly dependent on transparency — having accurate, real-time data readily available allows manufacturing leaders to make timely, data-driven decisions. In fact, at Syte, we’re big proponents of ERP data as a critical business asset.
One of the biggest advantages we see our clients getting with their ERP systems is global visibility into all the critical parts of the business. They can manage inventory more efficiently and plan their procurement cycles with greater confidence. An ERP system also allows manufacturers to integrate all their business operations, automating and streamlining end-to-end processes.
Supply chain management encompasses so many things — inventory monitoring, the ordering process, the shipping and receiving process, accounts payable, and so on. And an ERP can help automate all those pieces. When it comes to vendor management, manufacturers can use their ERP data to compare quality, price and delivery times for each supplier, and track communications related to every transaction.
The other great advantage of these digital technologies (like ERP) is that they help streamline coordination between manufacturers and suppliers. Digital technology helps manufacturers connect to vendors in a variety of ways: when vendors have access to a manufacturer’s ERP, they can see when inventory of critical parts is low, and address it proactively.
Bottom line, if you don’t have a modern ERP system in place, vendor management and supply chain management is going to be a very difficult and manual undertaking. And worse, you won’t be in a position to weather future supply chain disruptions, which are almost certainly on the horizon.
As the manufacturing industry continues to embrace new technologies, a modern ERP system will be critical to taking full advantage of innovation and positioning manufacturing companies for growth, not just survival.
Flexibility and Resilience Starts With ERP
Family-owned manufacturing businesses have had to navigate a lot of change and disruption in the past two years. Supply chain management challenges aren't likely to go away soon — and trying to solve those challenges without a solid ERP solution in place is not a winning strategy. The right ERP system will set manufacturers up for long-term resilience and success.
Are you thinking about building more agility into your family-owned manufacturing business? We’d love to help you get started. You can schedule a complimentary consultation session right here.
Erin Koss, CPA is an Andersen Business Consulting Alumni (1993-1999), and CEO of Syte Consulting Group, Inc. She is known for helping family-owned manufacturing companies scale with vision and integrity. Taking a people-first, process and technology readiness approach, Erin and the team at Syte ensure companies are ready to take on big change initiatives like ERP before diving in headfirst. A native to the Pacific Northwest, she enjoys traveling, being outdoors, hiking, biking, rowing, and supporting local culinary scene. Talk to Erin about preparing your company for sustainable growth.