Who Moved My Supply Chain?
By Tony Rodriguez and Mike Beauregard
Learning From The Trenches of 2020
The COVID-19 chaos of 2020 forced many manufacturers to slow production and delay shipments. It ignited a struggle by health care organizations to equip ICUs, care for patients and protect their workers. Supply chain managers stepped into one of the most stressful jobs of the year. 2020’s disruptions have caused them to adjust long-standing practices, create or expand partnerships, analyze warehousing and office utilization and fast-track technology.
We recently spoke with three supply chain and continuous improvement experts from three diverse organizations: a global supplier of instant-on hot water heaters, a large teaching hospital system in New England, and a supplier of natural skincare products. They shared the challenges they’ve faced and the solutions they’ve created to keep materials and critical supplies flowing to serve customers and patients.
Here’s what they’ve learned.
Accelerate to Manufacturing 4.0
“It was like whack-a-mole at first. But lessons from the pandemic have helped us accelerate technology and improvements to our internal processes. It’s pushed us to more transparency and predictability with our suppliers.”
That’s how the continuous improvement director of a global manufacturer of instant-on water heaters describes the company’s COVID-19 experience.
“Three of our suppliers went out of business and others weren’t delivering. We had to make changes to our supply chain model,” says the CI director. In a Manufacturing 4.0 initiative, the company launched a ‘control tower’ communications system that helps both the company and its suppliers make faster and more accurate decisions. “This system, which is being piloted with one of our own Southeast Asian facilities, gives that facility visibility to our inventory levels and helps them prepare, even before they receive a purchase order from us,” the continuous improvement director adds. “If we are using EDI going out, why not use it coming in?” The company is in the process of deciding how to roll this out to external suppliers as well.
A big portion of this effort will be the generation of an accurate forecast, which is often considered an oxymoron to manufacturing professionals. “Forecasting is not what you can push out of your shop. It’s what you can get from your suppliers and how fast you can get it,” says the CI director. “The more we know what’s coming in from our suppliers, and how quickly they know our needs, the better control we have over our own production and shipping schedules. Even in a pandemic, or perhaps even more so, the forecast must be accurate. There is a need for AI to assist in this area.”
And the pandemic quickly unearthed other issues that the company must face as it works towards Manufacturing 4.0. The need for more cross-training in the supply chain quickly cropped up at both ends. “We found that we needed more people trained in Purchasing and in Shipping practices to account for employees being out during the pandemic.” Even if the company has the data and information from their Manufacturing 4.0 efforts, it must have the people to create the inputs and to act on the data (the latter at least for now, but that’s another article).
“Bottlenecks move in this environment. It’s the ‘Theory of Constraints’ on steroids. Manufacturing 4.0 tools will help not just with the supply chain, but with our entire manufacturing operation,” the CI director added.
Streamline supply chain processes, develop alternate suppliers – and have somewhere to put the higher volume of goods.
Hospitals have born the true brunt of supply chain problems during COVID-19. “We’ve always adhered to Just-In-Time principals, keeping inventory low, managing our budget and doing whatever it took to bring in supplies right when we needed them,” says the supply chain manager at a multi-site, university-affiliated hospital system in New England. However, the sheer volume and urgency of need for masks, beds and ventilators, along with long lead times from FEMA at the outset of the pandemic, forced them to adopt new practices.
The supply chain team quickly streamlined its work. Nurses were added to the team to evaluate equivalency standards for items from alternate suppliers. Hospital management gave the team the authority to do what it took. The hospital hired an expert to develop supplemental systems to bolster their MRP system. “What we found,” commented the supply chain manager, “is that we were used to Mercedes systems, but Chevy’s work just fine.” Daily structured video calls with the entire team kept everyone pulling together.
With nationwide shortages of critical items, the hospital’s supply chain team reached out to local manufacturers. “We did a lot of fast negotiation with suppliers, some of them non-traditional in the health care field. We worked with a local plastics fabricator to develop a prototype for PPE gowns, then quickly conducted Level 2 clinical testing with the nurses on our team before going into production, says the supply chain manager. They ramped up a local aerospace supplier in just weeks to make face shields.
Now that the hospital system is receiving consistent supplies of COVID-related items, the supply chain team is working to develop a future contingency plan. They’re categorizing and cleaning data in their 80,000+ item supply list. They’re determining acceptable substitutions where an exact equivalent isn‘t available for the primary item. “In any supply chain negotiation where you’re working with multiple suppliers for one product, the challenge is to make sure they prioritize you,” explains the supply chain manager. “One way to address this is to buy a certain amount of their product with the agreement that they’ll be there to serve your needs in a pinch. Obviously, this affects standardization, but we need to balance this with real-world variances – we can’t always go by the book.”
For critical items, the hospital system is broadening this contingency planning to not just be COVID-specific. The team is looking at how natural disasters in regions where their suppliers are located could affect their supply chain. “We all need to engage second suppliers for critical items – especially those with a short shelf life. For example, right now a large percentage of IV fluids and intravenously-delivered medications are made in Puerto Rico. When earthquakes and hurricanes on the island threaten or halt production, everyone suffers.”
One of their greatest learnings from the pandemic was the need for space. The hospital did have an ace up its sleeve for this one. They had just finished construction of a new warehouse nearby. The plan was to have a third party distributor move into the newly-built warehouse space. But the pandemic hit before the move-in date, so plans were changed and the go-live date was pushed out until the first wave of the pandemic subsided. The supply chain team commandeered the warehouse to aggregate and organize the avalanche of goods flooding in to fight the pandemic. “We even set up a donation facility in the warehouse; the community’s response to our appeals for masks, hand sanitizer and other basic items was inspiring,” says the manager. “We were truly lucky to have the space, especially as we were seeing other nearby hospital systems struggle to have a mere six hours of supplies on hand. Creating adequate space will be a key part of our contingency planning for broad emergencies going forward.”
Get creative in your supply approach.
When China went into quarantine lockdown in March, a skincare company’s sole source, China-based supplier of glass bottles and tubes temporarily halted shipments. “Planes would not take off until they were completely full of product. Air and sea freight costs went up exponentially. Our lead times doubled. How do you explain this to customers?” asks the company’s supply chain manager.
To solve the problem, the company had to come up with new approaches to their supply chain. The strategies: standardization of components and late stage differentiation. Instead of customized componentry, the supply chain team looked for standard components that were easily duplicated. And they worked with Marketing to ensure they didn’t lose the brand look. They worked to find a supplier that wasn’t an ocean away that could mass-produce generic components; then customize them to the sales channel with a relatively local vendor.
It took time to develop the ideas and locate potential suppliers, but in November the skincare supply team contracted with a supplier in Mexico that began producing generic, unlabeled bottles and tubes. These were shipped to a US-based supplier that offered a layered labeling process with a one-and-half week printing and delivery timetable. This wasn’t the silk-screened packaging they had provided before, but they were able to satisfy customer demand with alternative, aesthetically-pleasing packaging they could turn on a dime. Their lead time is now shorter than it was before the pandemic.
Supply Chain Lessons for Survival Under COVID (and future disasters)
In their pandemic stories, each of these supply chain experts discussed some of the tactics they took to not only survive the next pandemic, but also to set the basis for future improvement. We’ve outlined them here for you:
- Identify each supplier in your base, their location, their capabilities.
- Identify primary and secondary components.
- Use ABC classification to identify 80% of product demand.
- Maintain good in-house inventory on high-demand items that carry a lower unit value.
- Look at your entire portfolio of suppliers – regardless of the current situation. Engage with your suppliers and build a supplier score card you both agree upon and evaluate them on an ongoing basis.
- Make more time to identify and develop local suppliers.
- Be open working with suppliers that offer different processes that can produce similar results.
- Explore consignment agreements In which the supplier warehouses their product, and you pay as you use it.
- Work with your suppliers to help them streamline their operations and eliminate non-value-add processes.
- Actively support Kaizen events that can help suppliers to reduce setup and maintenance costs and other wastes.
- Give your suppliers ongoing visibility into your production and delivery demand.
- Don’t allow any one supplier to produce more than X% of your product’s components.
- Start work on Manufacturing 4.0 if you haven’t started already. If you have, speed up your effort.
Tony Rodriguez is President and Mike Beauregard is International Consultant at Daniel Penn Associates.
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