How small manufacturers can improve their supply chain strategies

Supply chain strategies are one of the most important aspects of a manufacturing business. Small manufacturers can evaluate their supply chain and make smarter decisions using a Total Cost of Ownership (TCO) approach. Benefits of a TCO approach include minimizing freight costs, improving procurement, and reducing tariffs.

A TCO approach can help small manufacturers improve their bottom line by reducing costs associated with their supply chain. In many cases, a TCO approach can also help improve the quality of the products produced by a small manufacturer. With a closer look at the supply chain, a small manufacturer can find ways to streamline operations, reduce waste, and make informed decisions about where to source products and optimize operations.

Let's explore additional ways to increase your manufacturing business' bottom line.?

Relationship capital

Small manufacturers can leverage the power of their relationships to shorten their time to market. By building a network of trusted partners, manufacturers can better meet their customers' needs and maximize their influence in the supply chain. By building mutually beneficial relationships with key suppliers, manufacturers can strengthen their negotiating position, improve their access to resources and secure better terms. In addition, by building relationships with key customers, manufacturers can gain insight into their preferences and needs and ensure a more consistent and predictable demand flow.

However, many manufacturers struggle to build the relationships they need to succeed. This is because they do not know how to develop and maintain relationships, or they do not have the resources to do so. The first step to building solid relationships is identifying the key players in your industry with the most significant impact on your business. These key partners are often your direct suppliers, customers, and distributors. Once you have identified these key partners, you need to assess what type of relationship you want to build with each of them. There are three basic types of relationships you can make:

- Transactional relationships: This is the simplest type of relationship, typically characterized by short-term contracts and a focus on price.

- Strategic relationships: This type of relationship is characterized by a long-term commitment and a focus on mutual benefit and partnership.

- Innovative: Relationships characterized by experimentation and the creation of new products, services, or processes.

Once you figure out what type of relationship you want to build, you need to put in the effort. This means spending time and resources building relationships and investing in activities that add value for both parties. Also, keep in touch and check in regularly with your key partners to see how things are going.

Risk management for suppliers

Supplier risk management is critical to a company's overall supply chain strategy. It requires careful consideration of the risks associated with a supplier's performance and a proactive approach to managing them. Companies that effectively manage risk avoid the costs and disruptions that result from supplier failures. In addition, proactive risk management helps maintain brand reputation and improve future performance.

Small manufacturers can improve their supply chain strategies by addressing supplier risk. According to industry experts, there are several ways to do this. First, they should identify the different types of supplier risk and understand their respective severity. This is a challenging but essential task. Moreover, understanding and managing these risks is key to building a resilient supply chain.

Supply chain risk management helps manufacturers integrate their sales, operations, and inventory planning processes. Demand planning begins with a sales forecast and impacts material requirements. It is also essential to know what is in the pipeline. Once this information is available, operations can create a supply plan that reflects demand planning and considers available capacity and resources. Then, sales can validate or confirm the forecast to identify and manage risk factors.

Small manufacturers can ensure that goods are delivered on time and improve their supply chain strategies by optimizing supplier risk management. This approach minimizes supplier risk through diversification and closer relationships with suppliers. Small manufacturers can also enhance these efforts through the use of technology.

Suppliers should be reliable and able to meet the company's current needs. It's also a good idea to build strategic partnerships with top suppliers that offer priority services and economies of scale. The next step is to assign different risk categories to suppliers and develop substitute suppliers for primary materials.

Diversification of suppliers

A diversified supplier base improves the flexibility of small manufacturers and allows them to offer more competitive prices at the local level. However, supplier diversification is not without its problems. Supplier education is a necessary part of the process, as is maintaining open communication.

Diversifying the supply chain not only improves flexibility but can also reduce costs. Small manufacturers can save much money on materials and labor by working with multiple suppliers instead of relying on just one. Although the largest suppliers often offer the best efficiency, they are not always the best option. Sometimes, a small manufacturer may find that the prices are better with the smaller suppliers.

Diversification can also protect against disruptions caused by global disasters. Last year, disasters in Japan and Thailand disrupted supply chains, leaving many automakers unable to deliver their vehicles. Multisourcing is, therefore, an effective strategy for minimizing risk and ensuring a stable supply chain. However, to achieve diversification, supply chain managers need to know their supplier networks in detail and what impact each has on their business. Developing a comprehensive diversification strategy that includes contracting with additional suppliers and working with existing sole or single-source suppliers is essential.

Supply chains are fraught with risk. From natural disasters and raw material shortages to geopolitical events and trade disputes, supply chains can be disrupted by unforeseen circumstances. The key is to minimize the risk associated with unpredictable events, which can cause significant delays in production and manufacturing. By reducing risk, small manufacturers can improve their supply chain strategy by diversifying their suppliers.

Prioritizing critical products in the supply chain

Before implementing a new supply chain strategy, you must determine which products are most important to your business. You should rank your products based on their relative value to your customers and their overall risk and value. Then you can determine the steps you need to take to meet your customers' expectations.

Assessing your existing supply and demand data is the first step in implementing an effective supply chain strategy for small manufacturers. You need to know your suppliers' lead times, internal capacity, and which products have the most significant potential to generate the highest profits. You also need to evaluate your customers and the volume of each product to decide which products are most important.

The next step is to create a segmentation model based on each product's operational, financial, and commercial characteristics. This model should inform your production plan, procurement plan, and order allocation decision. Make sure you focus on the most critical, resource-constrained products.

While this process may seem simple, it's essential to consider the specifics of each product. This way, you can determine which products to prioritize and which to abandon. By ranking products by risk and value, you can make informed decisions about allocating your limited resources.

Integrated planning with budget and forecasting?

Integrated planning integrates the various functions of a business into a single model. By balancing tradeoffs between different functional areas, EBITDA is maximized. Traditionally, planning has been disconnected, resulting in isolated processes and inconsistent assumptions.

Integrated planning enables companies to utilize available resources better, resulting in better operational performance and lower costs. It also improves the relationship between demand planning and fulfillment. Adoption of this planning methodology has helped many companies improve their supply chain. It also provides an opportunity to improve employee engagement, which is critical to the success of the business.

The planning process may seem simple in small businesses but can be complex and time-consuming in larger companies. For example, a large company may have multiple departments, locations, and offices worldwide. As a result, planning can take up to three months out of the year. This time is often spent requesting budgets and setting goals for the following year.

Planning is the foundation for a company's strategy. It establishes goals, objectives, and resource allocations. It also ensures alignment and a solid partnership between finance and operations. Planning aims to make decisions that contribute to the business's success. [1]

Conclusion

While small manufacturers may not have the same resources as larger companies, they can use a TCO approach to improve their bottom line. By evaluating their supply chain and making smarter decisions, small manufacturers can lower freight costs, improve sourcing and reduce tariffs. Implementing a TCO approach takes time and effort, but the benefits can be significant. Are you ready to take your business to the next level?

Talk to us about expanding your efficient supply chain with our manufacturing capabilities at TPC Mechatronics Corp. We'd be happy to discuss how we can work together to improve your bottom line. To learn more, don't hesitate to get in touch with us here on LinkedIn or visit www.tpcpage.com.