Episode Show Notes
Episode 1 features Jane Tierney, Founder and President of Purple Link. Jane covers the key elements of supply chain diversification and the role it plays in risk mitigation. In addition, Jane offers advice regarding supplier negotiations and discusses supply chain “red flags” to look out for.
Jane Tierney is the Founder & President of Purple Link. Jane launched Purple Link in 2015 to provide vision and leadership for companies dealing with challenges concerning in-house, outsourced, OEM / ODM manufacturing, and non-manufacturing supply chains. Jane has a Bachelors in Industrial Engineering and an MBA and has earned a Green Belt as well as CPSM and CPSD certifications.
Highlights
00:00:00 - Introductions
00:02:12 - Definitions of supply chain diversification and supplier diversification
00:05:35 - Different angles and perspectives on how to view the supply chain in various areas of risk management
00:09:20 - How to start implementing a supply chain diversification strategy
00:18:05 - Recommendations on how to approach and conduct the negotiation process
00:25:43 - Red flags to watch for after establishing a diversified supply chain
00:35:17 - Possible advantages to local, offshore, or a combination in the supply chain
Transcript
Gregg Profozich [00:00:02] In the world of manufacturing, change is the only constant. How are small and medium-sized manufacturers, SMMs, to keep up with new technologies, regulations, and other important shifts, let alone leverage them to become leaders in their industries? Shifting Gears, a podcast from CMTC, highlights leaders from the modern world of manufacturing, from SMMs to consultants to industry experts. Each quarter we go deep into topics pertinent to both operating a manufacturing firm and the industry as a whole. Join us to hear about manufacturing sectors’ latest trends, groundbreaking technologies, and expert insights to help SMMs in California set themselves apart in this exciting modern world of innovation and change. I’m Gregg Profozich, Director of Advanced Manufacturing Technologies at CMTC. I’d like to welcome you. In this episode, I’m joined by Jane Tierney, Founder and President of Purple Link. Jane covers the key elements of supply chain diversification and the role it plays in risk mitigation. In addition, Jane offers advice regarding supplier negotiations and discusses supply chain red flags to look out for. Welcome, Jane. It’s great to have you here today.
Jane Tierney [00:01:07] Thanks, Gregg. Thanks for the opportunity to join you today.
Gregg Profozich [00:01:11] Jane, can you take half a minute or so and just tell us a little bit about yourself?
Jane Tierney [00:01:14] I’m a supply chain professional. I’ve been in operations and supply chain throughout my career. I started out as a manufacturing engineer, got into supply chain, and found that I loved it. Worked in corporate America for many years, and then about seven years ago, I decided to go out on my own. So, I founded my company, Purple Link. We do supply chain consulting and help companies find dollars that are dripping through their supply chain, draining the bottom line. We help them look for risk that’s lurking in their supply chain, give them tools and techniques to remove that. I also teach part-time at California State University, Northridge. Teach a couple of classes in operations management and supply chain. I work with the ASCM, the Association of Supply Chain Management, and ISM, the Institute for Supply Management, on their local San Fernando Valley chapters.
Gregg Profozich [00:02:12] Jane, based on that experience, I think we’re going to have a great conversation today. Let’s get started. We’re here to talk about supply chain diversification. In recent years the challenges faced by companies who deploy global supply chains have made the headlines. In a sense, these challenges are part of a long history full of supply chain challenges—things like geopolitical unrest, military conflicts, volatility in trade policies, foreign exchange fluctuations. The list is pretty long. Supply chain diversification can play a crucial role in mitigating risks, ensuring business continuity, and enhancing resilience for manufacturers. For context, let’s discuss the definition of supply chain diversification and where maybe supplier diversification might meet because both of those terms are out there in the ether.
Jane Tierney [00:02:57] You’re correct, those terms are out there. We hear those a lot. Sometimes they’re used interchangeably, but there are some distinct differences. Supply chain diversification is primarily a risk management strategy. It incorporates the process of expanding the number of suppliers a company uses for raw materials, components, and products. It also involves the whole supply chain, looking at the architecture of the supply chain—where suppliers are located, where different aspects of production are being performed on a daily basis, and year-in, year out. The idea is to reduce the risk of dependence on any one supplier and any one part of the supply chain and, at the same time, allow companies to obtain lower prices, experience better quality and delivery, and weave more innovation into the supply chain, which will build stronger, more resilient chains for every company. Supplier diversity is a little different. It’s a business strategy that establishes a supply base that’s comprised of companies that are owned and managed by diverse entities and groups. Often used in government, not-for-profit, and private businesses, diverse suppliers are those from a varying number of categories: disadvantaged groups with ownership of 51% or more, and they include ownership by people of color, women, veterans, disabled veterans, other disabilities, and LBGTQ+. Many companies that are public also use these strategies and metrics to measure the percent of the procurement dollars they spend with various categories of suppliers.
Gregg Profozich [00:04:41] Jane, it’s an interesting description of the two different ideas: supply chain diversification, supplier diversification. On the supply chain diversification one, you mentioned the concept of reducing the risk of single sourcing and also reducing the risk along any place along the supply chain. Are you talking there about potentially geographic or political factors or those kinds of things?
Jane Tierney [00:05:06] Yes, any of those types of areas that involve the supply chain. When you think about the supply chain, we start with lower-level suppliers. We go into manufacturing or operations. Then we go into retailers, distributors, warehousing, and finally, to the ultimate customer. We’re looking all along that chain to see where we can add some diversification that’s going to make that chain stronger and operate more quickly from end to end.
Gregg Profozich [00:05:35] It sounds like there’s different ways of working on supply chain diversification. It could be geographic. There’s more risk in a certain part of the world currently than there is in another part of the world. Having suppliers there might present more risk. Having a single supplier there, it sounds like, is incredibly high risk. There could also be other kinds of risk management that you’re doing. Can you talk a little bit about some of those different angles or perspectives on how to view the supply chain in different areas of risk management that we might do?
Jane Tierney [00:06:05] Sure. There are a number of strategies that businesses can use. A lot of these can be used by small and medium businesses as well as large corporations. They can use these to reach their goals and overall to reduce the risk throughout the supply chain. Dual sourcing, or having designated backup suppliers, is a common way to reduce risk through diversification. Sometimes the total volume from a smaller business or a smaller product line doesn’t warrant the dual sourcing. You don’t have enough volume to allocate that to two different sources. In that case, maybe in a sheet metal example, you might have multiple parts, so you want two suppliers. Give some parts to supplier A and some parts to supplier B. Then, if one supplier has a problem, the other may be able to take up all or some of that slack at least temporarily until you can resolve the problem with the supplier or get another supplier on board to fix that problem. Sharing that strategy with suppliers is also a good way to help solidify these relationships and maintain some competition that will help keep prices in check. If there’s a niche supplier where only one supplier makes sense, if you have an identified backup, you can count on them in a clutch situation. Rather than just have somebody sitting around not doing anything, you want to include that backup supplier in sourcing exercises for things like prototypes, one-off small rush orders that they can do so they do have some work, you can maintain your relationship, have that connection, and they’re at the ready in case you do need them for some larger, bigger issue that comes up. Other ways you can manage the supply chain diversification is to have different suppliers for different product lines, different programs. Another diversification is to look at geographies and look at where your suppliers are located, maybe where your finished goods are going to. When you’re looking for a new supplier, you might look in an area where you can send freight to a customer and then have the supplier in that same area where you can pick up and get that freight back on the return trip. You can have dedicated trucks moving back and forth between suppliers, the production plant, and the customers. There’s a lot of ways to diversify throughout that and spread that risk throughout the supply chain.
Gregg Profozich [00:08:34] Dual sourcing, or backup suppliers, where based on volume or maybe some other considerations, I have one, possibly two… I have a primary and a backup in case of an interruption, having different suppliers for different product lines, so if there’s an issue at one supplier, it doesn’t shut down my whole plant; it shuts down one product line at the most, I think. Is that the strategy, that risk mitigation there?
Jane Tierney [00:08:54] Right.
Gregg Profozich [00:08:57] Then geographically, looking for opportunities across the geography, right?
Jane Tierney [00:09:01] Right.
Gregg Profozich [00:09:01] If you look at the geographic supply chain from where materials are sourced and all your components are sourced to where your customer is, what can you do along that to make sure you’ve got the risk minimized, and how can you capitalize on things like backhaul opportunities, where you’re moving containers both directions of your own product where you’re not paying for empty miles? Is that what I hear you saying?
Jane Tierney [00:09:19] Yes.
Gregg Profozich [00:09:20] Excellent. That makes a lot of sense. If I’m a small or midsize manufacturer and I’m looking to implement a supply chain diversification strategy, where should I start?
Jane Tierney [00:09:30] I think the first thing you need to do is to make sure you have a complete and thorough understanding of your current supply chain. That includes your supply base and where things are being done, which entities are doing this. Part of that is a supplier categorization exercise, which a lot of companies do as a spend analysis. They look at the spend, how much you’re spending with each supplier on, say, an annual basis, and they may review a couple of metrics like quality and delivery performance for the last year. Those are good things to do, but it’s just a place to start. You need to look deeper into the critical needs of your business: the parts that you’re manufacturing, the parts that you’re buying, the products. Look at the risk areas for things like single and sole sources, like I mentioned before. If you can dual-source things, that’s good. Sole sources are a little more tricky, but the same thing applies. If you can find something that might take the place of that or might augment it. Look at which parts are critical to your business. One of the things that’s important to look at is where do you have intellectual property involved that either is owned by the buyer—the company that’s acquiring that—or the supplier. For example, I’m the buyer. My company designs a part, and we want a supplier to make it. That’s my intellectual property. But if we buy a motor from a company that makes motors—it’s an off-the-shelf part—then it’s their intellectual property. For supply chain diversification, you want to say, “Where are these critical elements?” One area, of course, is intellectual property. Another one is where you have consigned tooling or parts. For example, if you have plastic parts in your final product, typically, companies design those parts, pay for the tools to be designed, buy the tools, and then they consign them, or they send them to the supplier who actually makes the parts and ships them to the customer, the manufacturer of the product. But these tools are an important part of that. If you have these tools located in different parts of the world—say, in China right now or in any part of Asia; maybe you have it across the United States; maybe you have it in Europe or Eastern Europe—you need to understand where those tools are and what it would take to move those around. People say they want to move their business out of China into somewhere else, but simply moving those tools isn’t always as easy as it sounds like. There are many companies who have tried that and found that it’s difficult or very expensive to get those tools moved. Even though they are owned by the company that owns the IP, the Chinese government and local governments don’t want those tools to be moved. That supply chain diversification can be difficult. It can be cumbersome. It can take a lot of time and a lot of effort from people to do that. That detracts from the work that you’re trying to get done all day, every day. It’s important to understand that current architecture, understand where these things are, which parts are critical, which parts have things like intellectual property, assign tooling, and things like that, and start from there. Once you have that good understanding of that supply chain, then look for gaps. Where are things that you don’t have or that aren’t working well? Look for gaps and risks, and prioritize what needs quick attention, action. Where do I have a supplier that’s failing; where do I have parts that aren’t coming in on a regular basis; where do I have quality issues, et cetera, and then what you can do about that over the next few months. Sometimes you identify areas that need to be fixed in the next two, three months; quarter; six months, and sometimes you say, “Oh, we have a problem here. We have a gap or potential gap. We don’t think it’s going to happen in the next couple of months, but next year at this time, we’d like to be in a different position. We’d like to have our supply chain a little more solid in this area.” Then you share this analysis, the conclusions that you draw, with the key stakeholders in your organization. That includes people like design engineers, quality teams, financial teams, production and operation teams so that they all understand where the supply chain issues are. Then you can think about defining requirements for the supply chain going forward: what changes need to be made, get that buy-in, and then develop strategies so that either in the short term or over the next few months, you actually implement those changes and make your supply chain strong.
Gregg Profozich [00:14:23] It sounds like it’s three overall high-level steps that we’re talking about here. Number one is understanding the whole supply chain; number two looking for the gaps, the risk points; and number three share the findings internally and develop your plans for how you’re going to move forward. With each of those, the whole supply chain, there can be issues in a number of areas: what are your critical needs; what are the parts that are hard to find or that are customers you had developed a relationship with a vendor before they can produce quality. That’s a risk point. It’s not a commodity. It’s not something you can just go buy on the open market and use, right?
Jane Tierney [00:14:57] Correct.
Gregg Profozich [00:14:58] Anything that’s sole sourced, try to mitigate that. Look at where your IP is, and what’s involved, and what risks that imposes upon your entire business at that point because changes in IP or acquisitions along your supply chain of vendors can have an impact on your product and in your business’ viability over the long term. Look at where you have consigned tooling. The consigned tooling, I think, is a big one, also. Just because I own it doesn’t mean I can put it on a boat, move it from one country to another. A lot of times, there are administrative barriers that are erected to stop just that kind of behavior, is what I hear you saying. Is that correct?
Jane Tierney [00:15:31] Right. In the meantime, you would need to manage the inventory for the parts that you need if you take that tool out of production for any length of time. Maybe there’s no problem moving it from country A to country B, but you’re going to get downtime; you’re not going to be able to produce. You’ve got to build up the inventory so that you have a bank of parts to rely on while that tool is being moved from point A to point B, and reset up, and proofed out, and ready for production to resume.
Gregg Profozich [00:16:00] Because if I expect it to take a month and it takes longer, how much safety stock do I want to have, right?
Jane Tierney [00:16:05] Exactly.
Gregg Profozich [00:16:06] I get it moved. I take it out of the existing plant. I put it on a container and move it to point B. It goes to this destination. They install it, and they run production, but they can’t get quality. There’s something glitchy in the way the process is at the new place. Until that gets smoothed out, you don’t have quality production. You have to have that inventory to bridge that gap.
Jane Tierney [00:16:24] Right.
Gregg Profozich [00:16:24] Makes a lot of sense.
Jane Tierney [00:16:26] It’s a pretty complex program management activity to do that. It takes a lot of people and a lot of worrying about the details of things so that you’re ready and prepared to do that and have the right inventories in place, the right mitigation, and the right resources to make sure all of that gets executed on schedule.
Gregg Profozich [00:16:42] Now I understand the whole supply chain. Now if I’m looking for gaps, who are my problem suppliers? What do I know about their businesses? Are their businesses stable and solvent? Are they showing some signs of not being stable or solvent, or is there acquisition activity going on in the industry? Do I have to watch out for that, where a supplier may be purchased and no longer desire to sell to me, et cetera, and then also look for the quality variations, rating the suppliers in terms of what’s the quality coming out so I know what kind of consistent product flow I can have from that? The higher the variability, the less my output is consistent if I don’t have good quality parts coming in. Then getting that internal team involved, that third step of making sure everybody’s got buy-in, where they don’t just go on autopilot and buy from the same people we bought from for years. There may be reasons, based on this analysis, that we want to start diversifying and managing the risk a little more proactively.
Jane Tierney [00:17:31] Right. You want to look at what’s working and what’s not. Then you also want to ask the question, “Where am I spending my time as a company managing my suppliers and my supply chain?” and then, “Where should I be managing that?” For example, if you’re spending time managing a supplier or a commodity, then why are you doing that when there’s probably other alternatives that are going to make your life simpler and use less resource internally? That might be a good place to start looking for some diversification and moving things around or changing the supplier.
Gregg Profozich [00:18:05] That makes great sense. I’ve done the analysis, and now I think I’m ready to implement my strategy, starting to identify suppliers. Are there any recommendations you would have about how to approach and to conduct the negotiation process?
Jane Tierney [00:18:19] Well, as you said earlier, sometimes you have to start the negotiation with internal stakeholders on where changes need to be made because internal stakeholders—the designers, the quality people, the buyers, commodity managers that have worked with suppliers for some amount of time—may not want to add an unproven supplier to their program or product line, may not want to start working with a different team when they feel very much in sync and have alignment with a team that they’ve been working on or with for months or even years, may have strong relationships with these suppliers and their counterparts at these suppliers. The negotiation may have to start there that says… Again, returning to that deep dive that you did in that categorization process, understanding why the change is needed, what benefits the change is intended to bring to the company in the short and the long run, and review those risks and gaps that you identified to say, “This diversification is going to address these risks and these gaps by adding or changing these suppliers.” But when you’re negotiating with suppliers, my first line of advice is always do your homework and be prepared. It’s amazing to me how many people and companies go to a negotiation not ready, just winging it. “Oh, yeah, we know this. We can do this.” One thing that’s very important to do is to define your needs and wants across the team and make sure you have alignment on that, and always have a walkaway position defined and ready to execute if you need to do that. You need to recognize the criticality of the parts, the products, the services, whatever it is that you’re buying in this negotiation and, again, make sure your entire team is in alignment with what are the needs, what are the wants, and this is our crucial outcome from this negotiation. I do a workshop where I offer four different approaches to negotiation, depending on the situation and the goals that the organization is trying to achieve. The first is a value add, which often applies to this supply chain diversification activity. This is deciding that a supplier can provide more than just parts that are going to be used, and generally for a long-term relationship that you expect. Then the next approach is if there’s a compelling need, like having a deadline that I need parts by this date or I need a particular price point. Then you use that strategy to negotiate for that the compelling need. The third approach I call combine forces that you use when there’s an imbalance and you’re going to have to have concessions, or you might have assistance needed from either side. Then the fourth situation is the win/lose strategy, which is how many people think of negotiation. That’s what you use for a one-time negotiation. I don’t recommend that if there’s a chance of having to come back to the table as a follow-up negotiation or if it can be soured if one party feels like they lost or were taken advantage of. If you’re adding another source, you want to use the current source as a benchmark for the pricing, the quality, and delivery. Again, the homework is required here. If you’re looking to add and improve supplier capabilities, whether it’s in technology or another type of expertise, maybe manufacturing expertise… If you’re trying to improve supplier performance and responsiveness, get a better business fit with a company than you have, or aligning with current initiatives like sustainability or market expansion, consider all these factors when you sit at the negotiation table. It’s important to combine all those and, again, think about what you need from the outcome. Always consider the position of the other party. What does the supplier need and want? How do they match up against my needs and wants? How am I going to approach this? How am I going to get my desired outcome? Think about what you might be able to compromise on or what concessions can be made. One common concession is payment terms, especially if the customer is a bigger customer and you have smaller suppliers. I worked for corporations, and we really liked payment terms of net 45 and even net 60, but for smaller suppliers, those are hard terms for them to accept. Sometimes they need shorter payment terms, net 30, which might not be a problem. Sometimes they need upfront money to go buy material, or to hire people, or to get something established. If you can offer these quicker payments, if you can offer an upfront payment for them to buy material, that might be an easy give for one company that’s going to make the whole negotiation outcome better for both companies. Then finally, I say, have a plan B because if you get pushed to the edge or if you get to the point where you just can’t accept the terms that the other party is insisting on if you walk away, be prepared to walk away. Don’t do that in a fit or in a pique during the negotiation. If you’re ready to do that, make sure you have a backup plan, and you can have something else to go to, even if it’s not highly desirable and it’s going to be painful for you to execute.
Gregg Profozich [00:24:04] There’s a lot there to unpack. I’m just going to try to hit some of the highlights. It sounds like the most important thing is the thinking, and the thought process, and the preparation process that you’re talking about, making sure you’re…
Jane Tierney [00:24:17] Preparation is key.
Gregg Profozich [00:24:18] Making sure you are clear about what your needs are and what your wants are and making sure you’re aligned across your internal team so that when you’re negotiating, the messaging is clear, the messaging is aligned for anybody that the prospect is going to talk with. Then when you have that, think about what strategy you want to employ. Are you looking for just a product that’s a commodity to be delivered, or are you looking for something that has some value-added services? There’s a different way you might approach those conversations. Is there a compelling need? Did you have a supplier that announced they’re going out of business, and they only have X days of supply, and you need to fill that gap? That’s going to definitely impact what your negotiation strategy is and how hard you’re willing to bargain. The combined forces approach, there’s a collaboration involved here. What kind of relationship does that have? Each of those requires some thought and preparation. You can benchmark some of the things based on your current source. You got to be considering where the other party’s coming from and think about where your concession areas are going to be and what likely concession areas they’re going to have. Be prepared to walk away, but definitely have a plan B before you do. If there is no plan B, then that changes your negotiation.
Jane Tierney [00:25:25] Then you better be able to compromise, and concede, and give up a lot. That goes back to the single focus, the second type of approach, where I have to have something, so I’m willing to give up a lot in other places if I absolutely can’t miss this deadline.
Gregg Profozich [00:25:43] Let’s shift gears just a little bit. I’ve got an established supply chain. I’ve done the analysis. I’ve gone through and done some negotiation strategies. Now I’m in a steady state, if you will, for a period of time. I know supply chain can be very volatile, so that steady state may be days, or weeks, or months. Who knows? When do I start looking for…? How do I think about when it’s time to start thinking about making a change to my supply chain? I’ve got a diversified supply chain, but what are those red flags you’re looking for, if any?
Jane Tierney [00:26:13] Well, it’s always best and easiest to make changes when you don’t have time pressure, when you can anticipate and say, “This is going to be a problem if I don’t take the action. So, let’s go take the action before the stuff hits the fan.” But that isn’t always what happens. Things happen with suppliers and the supply chain. I’ll give you an example: the tariffs that were put on in the last few years by the Trump administration. When they put a lot of tariffs on aluminum and steel coming out of China, that was a huge hit to a lot of companies. That’s not something that anybody could have expected, but it had lots of impact all along the supply chain of many different companies. The chip shortage that we’ve been experiencing. Chips go into every electronic thing on the planet. People say, “Oh, that doesn’t bother me too much.” But then think about how much electronics that you actually touch during the day at home in your leisure time. There’s a lot of chips in them. The red flags are looking for things that suppliers have that are tells, like financial issues or maybe natural disasters. Sometimes there’s floods and fires, and things like that that happen that you hear about and say, “Oh, this is probably going to affect that.” Or an earthquake in a particular part. Companies do get bought and sold all the time. Sometimes it’s seamless, and sometimes it wreaks havoc on them. Be aware of that. You get new management who can upend your current environment and upend all the processes and procedures that you have in place. Look for any of those kinds of major activities. Then look at individual suppliers that might suddenly start failing in their quality. The parts that they send you are suddenly starting to fail on the line. Or a supplier that’s had pretty good delivery for the last few years, and all of a sudden, the deliveries are sporadic, or inconsistent, or late. What I say when you see red flags or yellow flags, you want to take a triage approach. Stop the bleeding; focus on assurance of supply, and make sure you have some continuity of supply coming in and that supply chain still remains active. Look for the ability to have one team address the short-term problems and another one look for longer-term, real resolution to the problem that has longer-term implications. It’s important to be proactive and train all of the employees involved in the supply chain with different suppliers to keep an eye out for significant changes or, sometimes, maybe not-so-significant changes that might have a lot of impact behind them. Sometimes these things are subtle; sometimes, they’re overt. They should include all of the engineers, the designers that work with different suppliers to be on the lookout, as well as the procurement and planning organizations that deal more often with the suppliers, to notice these things, share their observations, and then see if it’s worth taking action on or not.
Gregg Profozich [00:29:31] To recap what I heard you say, there’s a number of areas that are red flags. That list is not exhaustive here, but it includes things like financial issues. Is the client showing any signs of financial issues? Are they in an area that’s prone to natural disasters? Are there acquisitions or any M&A activity in their industry? Is there new management at a given supplier, and, therefore, some changes may be coming down the pike? Are there sudden changes in the quality of product that you’re receiving from that supplier, or in the on-time delivery frequency, or in the relationship in any way? Have two teams to assess these red flags and look for one to do triage to ensure the continuity of supply, one to look at the more long-term relationship issues and look for the long-term solution to this interruption. Those teams are doing that. How are they doing that? Well, number one, you need the intelligence. The intelligence comes from your entire team—your engineers, your designers, your procurement people, et cetera. All are looking for things that have changed that are interesting to note and then can be pieced together to give a more positive look. I tour the plant every year. Is the volume of work in there different year to year? Are there staffing changes? Do we have different people coming through, different issues we’re working with, layoffs, hiring frenzy? It’s really important for your entire team to share that information with each other so that everybody’s aligned and knows what the changes are and can maybe anticipate some of these things are coming down the line and not find yourself in a situation where you have time pressure. That makes great sense. To move on to the next question here, I wanted to ask you and talk a little bit about was: lots of disruptions in the past few years. How does supply chain diversification help manufacturers weather that storm? What are some of the metrics that you would use to prove that case?
Jane Tierney [00:31:19] Supply chain diversification helps companies be prepared. It helps them be on the lookout for issues in supplier issues like quality delivery. Also, from the other end, customer deliveries, customer impacts, customer rejects, things like that. Having other suppliers who can jump in and help and assist is preferable to relying on a single point of failure, as I said before. For manufacturers, if they can have dual sources, multiple sources, that always helps. Diversification also makes your overall supply chain more efficient. When you’re more efficient, you’re better prepared to weather a storm or an impact because you understand the relationships within the supply chain and the dependencies there so you can take action more quickly. When you’re aware, you notice things more quickly, and you can respond more quickly. When you do that, you can keep your costs down, do things like promoting freight consolidation and expanding your market into the market areas that you want to do and to new geographic regions, and improve your profitability. Manufacturers best weather things when they have options, and they can look at choices of how to react and respond to whatever hits them. We have a lot of concern today with a lot of manufacturers having suppliers in China. If you have some diversification throughout the supply chain, it can alleviate some of the pressure and worry that companies have of being dependent on that region or being caught in a vise if something happens between China and Taiwan or some of the other things that might happen. When we have the diversification, it helps balance cost and product availability. For example, if you have a local or a domestic supplier that might have a little bit higher cost structure than one, say, in Asia. But if you have a diversification strategy where you’re getting product from both suppliers, you can get it more quickly from the domestic supplier, even at a higher price, but you can get more volume, more quantity at a lower price by ordering it from Asia, putting it on a boat, and sending it here. You can get a lower price for, say, 80% of the product that you’re buying, but that local supplier can help you have some flexibility and responsiveness by being able to get some product on a regular basis or more quickly from the local supplier, even though it costs a little bit more. Not putting all of your eggs in one basket through that supply chain diversity can help set you up to be more flexible and resilient. The same thing goes with production facilities. If you can produce both in Asia and the United States, then that makes your whole supply chain more flexible and agile because you can move it from one to the other if you have similar capabilities and similar infrastructure built within the plant to be able to do that. I also think that training a team on identifying these risks and gaps doing risk-based thinking along with this supplier diversification strategies, that helps make better, stronger employees and proactively works on their decision-making skills to make better decisions from the outset, which gives you better results in the long term.
Gregg Profozich [00:35:17] I think that’s a pretty compelling list. Having better performance on quality, and service, and costs, and margin delivery, I’ll be able to have a diversified supply chain, allowing you to manage volume using both offshore and domestic manufacturing. Buy 80% of the schedule cheap overseas, and then balance the other 20% for variations model, idea, to keep inventories low and keep product flowing through without carrying too much inventory but not having that long risk of long supply chain. Balancing that way. Having your people also involved in that all makes great sense. Those are also some of the advantages of the local versus… You started talking a little bit about the local versus offshore supply chain. Are there other advantages to local, or offshore, or a mix of both? What is your recommendation to clients?
Jane Tierney [00:36:08] My recommendation to clients is have a lot of options. There’s a lot of ways to manage that. The more options you have… And to try to be as proactive and stay on top of it as you can to anticipate, rather than being in a position where you let things evolve around you, or you decide by not deciding and have the universe decide for you when you get a pandemic or something else that says, “Whoops, maybe that wasn’t the best idea.”
Gregg Profozich [00:36:35] Jane, lots of good points and things we’ve discussed today. Is there anything else important to mention that we haven’t talked about yet?
Jane Tierney [00:36:42] No, Gregg. We’ve covered a lot. Supply chain diversification works best, though, in my opinion, when you add in activities like supplier categorization when you have defined supplier performance management metrics, and processes, and expectations of suppliers. When you have supplier relationship management programs in place, and you actually have supplier strategy development and actually have specific strategies for aspects of the supply chain, including the suppliers. Because without a deep dive into the gaps and the risk identification, supply chain diversification won’t yield the optimal results that companies are looking for and need today. Just doing an analysis without documenting your conclusions and creating specific strategies to overcome those, that won’t help you in the long run either. You can’t trust that, too. Without documenting the conclusions and creating actual strategies won’t yield those results either. Lastly, relationships are key to collaboration, to long-term relationships, and successful outcomes. But these relationships have to be developed and managed over time. They need to span several layers of the organization and include stakeholders like design engineers; quality, production, and ops teams; and financial interface, as well. By working with all of these facets of the business, companies can achieve better results more quickly and sustain those results over time.
Gregg Profozich [00:38:16] Jane, thank you so much for joining me today and for sharing your perspectives, insights, and expertise with me and with our listeners.
Jane Tierney [00:38:23] Thank you, Gregg, for the opportunity. As you can tell, I’m passionate about a lot of this, and I’m always happy to share my thoughts and ideas with other interested people.
Gregg Profozich [00:38:33] Absolutely. It was a pleasure having you here. Your knowledge and your passion is clearly evident. To our listeners, thank you for joining us for this conversation with Jane Tierney on supply chain diversification. Thank you so much. Have a great day. Stay safe and healthy. Thank you for listening to Shifting Gears, a podcast from CMTC. If you enjoyed this episode, please share it with others and post it on your social media platforms. You can subscribe to our podcasts on Apple Podcasts, Spotify, or your preferred podcast directory. For more information on our topic, please visit www.cmtc.com/shiftinggears. CMTC is a private nonprofit organization that provides technical assistance, workforce development, and consulting services to small and medium-sized manufacturers throughout the state of California. CMTC’s mission is to serve as a trusted adviser providing solutions that increase the productivity and competitiveness of California’s manufacturers. CMTC operates under a cooperative agreement for the state of California with the Hollings Manufacturing Extension Partnership Program, MEP, at the National Institute of Standards and Technology within the Department of Commerce. For more information about CMTC, please visit www.cmtc.com. For more information about the MEP National Network or to find your local MEP center, visit www.nist.gov/mep.