Supply Dynamics Insights
Companies have increasingly outsourced manufacturing processes, creating network complexity.
If you were to take a snapshot today of just about any OEM, its a sure bet you'll discover a company exclusively focused on product design and final assembly. Transforming from vertically integrated to ‘virtually integrated,’ the majority of their production parts, components and assemblies are now purchased from globally distributed networks of contract manufacturers. In some instances they will collaborate with contract manufacturers on part design, but in most cases they have delegated complete responsibility for the resourcing and manufacture production part, components and assemblies to external partners and suppliers.
Distributed Manufacturing Environment Challenges
How is this impacting supply chain performance?
As a consequence, numerous commodity strategies and sourcing activities co-exist that are neither shared, coordinated nor optimized across operational business units or contract manufacturers. It would not be uncommon to discover an OEM competing in the same market to secure the same material or production capacity with its own sub-tier supplier. Further complicating matters, most OEM’s forecasting and planning processes are linear and will only extend to the purchased part level, making it difficult to propagate requirements through n-tiers of supply. This inevitably drives reactive behavior in which the OEM is perpetually “firefighting” costly supply related issues after they occur.
Is there a solution?
While it’s challenging under these conditions to drive the desired supplier behavior, realize efficiencies, and leverage scale for commercial benefit, there is hope. Companies that have put structured sub-tier supply chain management programs in place to influence critical activities have seen significant value. Two types of programs are common: (1) Network Demand Aggregation enabling collaborative forecasting and planning to improve the coordination and communication of OEM source, part/material, and process standards to the sub-tier Supply Network and (2) Group Buying Purchasing Programs that allow the OEM to negotiate price and volume, ensure supply certainty, while allowing sub-tier partners to continue to manage the physical flow of materials, With each of these strategies, monitoring ongoing performance and verifying compliance to stated OEM standards and policies is a essential to program success.
