It Takes A Village: Improving Your Supply Chain Ecosystem
June 5, 2019
Today the ideal supply chain ecosystem incorporates a wide array of integrated strategic supply chain partners, suppliers, distributors and other entities. It takes a village, so to speak. In “The New Era of Global Supply Chain Ecosystems – Complex But Strategic,” author Mark Millar exposes that “world-class organizations no longer perceive the supply chain as merely tactical support for business as usual, but take a holistic position that their supply chain is what drives the business, as many different entities within one business, work together for their greater good.” While it may sound philosophic, it’s the embodiment of the modern supply chain.
The High Cost of Supplier-Partner Inefficiency
There are dividends to be had when an Original Equipment Manufacturer (OEM) and supplier-partner work hand-in-hand to achieve clearly-defined goals. Conversely, there is also a price to pay when a healthy OEM-supplier bond is strained or lacking. It can cost both parties money.
McKinsey cites the auto industry as one example where inattention to supplier-partner relationships can result in inefficiencies in OEM–supplier interactions. This can add a 5 percent uptick to production costs. In their report, Making it in America: Revitalizing US Manufacturing, they elaborate: “Keeping suppliers at arm’s length affects the bottom line of large manufacturers. These costs are significantly higher for US carmakers than for their Asian counterparts. Similar inefficiencies affect other industries, and they are likely to multiply as manufacturers seek to expand product portfolios and reduce turnaround times.” So as disconnected supply chain models fail OEMs, how can more strategic relationships be fostered?
Value Over Price
McKinsey goes on to advocate for the solicitation of ideas, solutions, and tapping into the knowledge base of supplier-partners for ways in which OEMs can better manufacture product. At the end of the day, it’s more about generating and retaining value within your supplier-partner base than purely seeking the lowest-priced bid.
This is based on the premise that within a portfolio of supplier-partners, there are many strengths and skills. For example, a strategic fabrication partner may be able to take on the capital equipment costs and capacity arrangements to produce metal parts more efficiently and effectively – and domestically – than your own plant locations. Or perhaps you’re struggling with sourcing competitive supplier-partners for particularly complex, low-volume weldments. Monthly and quarterly supplier-partner reviews can serve as an appropriate time to comb through and update goals, priorities and challenges with your Tier 1 suppliers. This is when a dynamic network of strategic supply chain partners can begin to show their true value.
The Boston Consulting Group (BCG) also validates the cultivation of the right supplier-partner ecosystem for your business, rather than merely treating suppliers as a list of expendable vendors. In “The Emerging Art of Ecosystem Management,” BCG gives illustration to the positive outcomes of this approach by naming “adaptable ecosystems” as better equipped to react faster “to evolving demand patterns, customer preferences, and the competitive landscape.”
In this global economy, it can be tempting to place greater emphasis on quote price competitiveness among supplier-partner relationships. However, this can be to the detriment of the many advantages (which typically result in cost savings) a robust supply chain ecosystem can offer an OEM. Vast ecosystem improvement may simply start with your approach to supplier-partners and how communication is managed over a designated time period.