Episode Show Notes
Episode 2 features Supply Chain/Operations & Management Consultant Gary Steinberg. Gary discusses how the pandemic has affected global supply chains, how SMMs can evaluate supply chain risks, the benefits of supplier scouting, and how SMMs can get started with supply chain strategy.
Gary Steinberg is an experienced supply chain/operations and management consultant with over thirty-five years of industry experience in operations, manufacturing, and supply chain. Gary has held senior level supply management positions with Fortune 500 companies such as Apple Computer, Alps Electric, Honeywell, and Hewlett Packard. Gary has expertise in supply chain strategy, logistics and distribution, process flow value streams, S&IOP process, supplier management programs, sourcing, outsourcing, partner management, and capacity analysis. Some of Gary’s recent projects include developing supply chain strategies, supplier rationalization programs, offshore sourcing (including China), current state/future state manufacturing processes and distribution models, S&IOP assessments, and factory and distribution center network optimization programs.
00:00:00 - Introductions
00:02:00 - How the pandemic affected global supply chains
00:03:01 - Why supply chain is such a critical issue for manufacturers
00:05:35 - Definition of supply chain resiliency
00:08:20 - Anticipated time disruptions to supply chains will be felt by US manufacturers and some other factors driving the length of these disruptions
00:12:10 - Roles and responsibilities of supply chain departments in companies
00:16:49 - Discussion about SIOP and supplier scorecards
00:19:30 - How to formulate the SIOP process with one person
00:21:21 - Drivers of supplier risk likely to impact supply chains of SMMs for the foreseeable future
00:23:33 - How SMMs should evaluate risk and what they should they do
00:25:24 - Risk mitigation ideas
00:28:57 - How an SMM can balance cost with risk and supply chain resiliency
00:29:31 - How reshoring or nearshoring may fit into mitigating risks
00:31:47 - Definition of supplier scouting and how it can benefit manufacturers, especially SMMs
00:35:44 - How much time is likely needed to identify risks in the supply chain
00:36:59 - Actions you take today around supply chain mitigation will prepare your company for the next supply chain disruption
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 Supply Chain/Operations & Management Consultant Gary Steinberg. Gary discusses how the pandemic has affected global supply chains, how SMMs can evaluate supply chain risks, how SMMs can get started with supply chain strategy, and the benefits of supplier scouting, also called supplier sourcing. Welcome, Gary. It's great to have you here today.
Gary Steinberg [00:01:11] Gregg, thank you for having me today. I really appreciate it. I'm looking forward to our discussion. My experience: I've been in the supply chain for over 40 years and actually been supporting CMTC in this role for the last 18 months. Very happy to be here and share my experiences and try to help create what I consider a more resilient supply chain.
Gregg Profozich [00:01:33] Excellent, Gary. Thank you so much. I'm excited about our conversation today. I'm looking forward to hearing your perspectives and your insights. Let's get started. There's no doubt that the pandemic has changed the world in unprecedented ways, from lockdowns to social distancing to vaccine and mask mandates to the major shift in working from home for many people. So many aspects of society have been impacted. From a high level, what has been the effect on the global supply chains of the pandemic?
Gary Steinberg [00:01:59] The impact of supply chains have been severe. A recent survey, this particular one from Accenture, a survey of Fortune 1000 companies, that 75% of their supply chains have been negatively impacted, while 50% have responded with their costs and forecasted sales growth have been negatively impacted. We've also seen a lot of shifts in the labor force. We've seen a lot of shortage of workers throughout a lot of different industries. Especially hit hard is the service industries, where we're seeing work is shifting from lower to higher-paying jobs. All that has had a severe impact on global supply chains.
Gregg Profozich [00:02:43] I think it's been in the news a lot lately. But 75% negatively impacted. That's pretty significant. These supply chains stretch in many cases around the world and across many, many different borders. I'm sure that causes a whole lot of complexity into the movement and flow of goods. Why is supply chain such a critical issue for manufacturers and for everyone, really?
Gary Steinberg [00:03:01] Supply chains cut across many layers in our everyday living from consumer goods to industrial goods. When we see consumers seeing availability of essential items, food items... We talked about toilet paper. We all joked about that. But that's when everyone realized how critical supply chain is to everyday living. Now even today—this is a year and a half into our pandemic—we're starting to even have impact of Christmas already. We've seen companies like Walmart, Costco, as an example, Home Depot all start to charter their own freighters, ships to deliver goods from Asia. What that means is the impact is severe in terms of availability of toys, apparel, even, to stock the shelves for our Christmas holiday shopping. That's why we're seeing that supply chains are so critical in our daily lives and also in the industrial area. It's just totally a widespread situation that we're being affected by at the current time.
Gregg Profozich [00:04:06] The Walmarts and the Costcos can afford to charter a freighter. The local 20-person small manufacturer can't, but his components that he needs, his critical supplies that he needs may be on one of those ships that is one of the 60 or 70 that we have sitting off the Port of Long Beach in LA right now waiting for a berth and waiting to be unloaded. That's the issue there?
Gary Steinberg [00:04:26] That's very accurate. That's why CMTC and a lot of us in the supply chain are really recommending to the SMMs, small and medium-sized companies, really take a hard look at reshoring your supply chains. I know we'll probably discuss this in more detail later. But again, there's a tremendous amount of risk today in China, because they're having the same type of issues that we're having. They're facing labor shortages. Also, what we're seeing in China is a lot of government restrictions, new laws, new restrictions that are having an impact on a lot of different companies in China. Unless you're a big company that have deep rooted relationships in China, this becomes a very, very severe issue for the small and medium-sized company that don't have those types of relationships.
Gregg Profozich [00:05:15] Okay. Before we get into a lot of those details—I want to delve into each of those things you just mentioned: reshoring, China, economic stability across the world, some of the issues with international shipping and also domestic shipping—it's not the fact that the freighters are here and can't be unloaded; it's also the fact that we can't necessarily get drivers to distribute those goods inland. Right?
Gary Steinberg [00:05:34] Correct.
Gregg Profozich [00:05:35] There are many different issues going on. We want to delve into all of those. But we're here to talk today about supply chain resiliency. Before we get into some of the nuts and bolts of that, to put things in context for our listeners, how about if you define for us exactly what supply chain resiliency means.
Gary Steinberg [00:05:49] Well, I'm going to give you the Webster's definition to start with. That is, it's the ability to quickly recover from a negative event. Let's apply that to the supply chain. First of all, let's consider America as a culture, as a society. We consider ourselves being a very adaptable society. We're always adapting to new ways, new challenges, and we seem to do very well with that. We're seeing within the effects of the pandemic we can apply the same definition, the same principles. How does a company recover from a negative event—losing a key supplier, non-delivery of key parts? The question is: does your supply chain have a plan in place to quickly counter these negative events? That's the question of the day. What are you doing within your own supply chain to counterbalance or counteract those negative events? That's how we become resilient in the supply chain. There are many actions we can take, not only locating redundant suppliers, but there's other activities we can do, as well.
Gregg Profozich [00:06:53] If I was to listen to what you're saying and try to paraphrase it back, supply chain resiliency is really the ability for a trading actor within a supply chain, small and mid-sized manufacturer in many cases that we're talking to, to have a capacity to resist and recover from any kind of unplanned events or disruption.
Gary Steinberg [00:07:11] You got to minimize those risks to create a resilient supply chain. For example, in today's supply chain we're seeing global shortages, and we're seeing that, say, in memory chips. We know that they're impacting a lot of industries, particularly the auto industry. We see that in the newspapers every day. It's very hard to counterbalance, to counteract that type of situation. We can do our best and go out to what I call the gray market, things like that, but that's not a sustainable counteractivity. Not in all cases can we build a resilient supply chain for every event that is in the world. We do our best. I think that's the key. We do our best to create those activities and those actions that can limit our risk in the supply chain.
Gregg Profozich [00:08:02] Got it. There are some things that can only be purchased from one supplier. There are only certain materials that are only available from certain countries. There is no second option.
Gary Steinberg [00:08:10] Well, we have a worldwide shortage.
Gregg Profozich [00:08:11] Right. Nobody has it.
Gary Steinberg [00:08:13] Right. It doesn't matter if you're XYZ Company or ABC Company. They just can't get the material to produce that product, for example.
Gregg Profozich [00:08:20] All right. That gives us some context of what supply chain resiliency is all about and what we're talking about here today. The stay at home orders to flatten the curve were originally expected to be just a few weeks. Obviously, reality has been something very different than that. The disruptions to normal life have lasted much, much longer. I would assume that supply chains are also likely to be affected for the longer term. Just how long are these impacts to the supply chains likely to be felt by US manufacturers, and what are some of the other factors driving the length of these disruptions?
Gary Steinberg [00:08:51] This is a difficult question to answer. Most supply chain experts expect that the US supply chain will return to normal in Q1 or Q2 of 2022. However, I really think... This is my own personal opinion. This is just something that Gary Steinberg believes in. I think we're seeing that the risks are continuing. We're seeing delays in freight, shipping, raw materials having a huge impact on our supply chain. For example, raw materials—petrochemicals, resins, anything oil-related—we're seeing tremendous delays in trying to locate that material—glass, packaging. There's just a whole portfolio of products impacted by raw materials. With that and I think with labor shortages we're seeing across many different industries, as you mentioned, even truck drivers... Can't find a truck driver. Trucking companies are willing to train truck drivers, pay them bonuses to join the company. We're seeing wage rates increase, and we're seeing a lot of shifts in our supply chain, our labor force. Those dynamics are playing a role in extending what I consider this disruption. I'm thinking it's going to be more like Q3, Q4 of 2022 when we get back to some normal supply chain. I think it's going to take us a little while longer to get to that point.
Gregg Profozich [00:10:20] I think, if my understanding is correct, that there's been a shift. When we first went into lockdown, everybody's like, "Okay, what's going to happen?" March and April were strange. Then we realized that we're staying home for longer, but we still had our jobs, and the economy was still moving forward at some level. Then PPE production became something big, and things started to shift. We couldn't go out to restaurants. We weren't getting on planes to fly off to see family; we weren't going on vacations; we weren't going on cruise ships, but we were spending money on our homes. We were spending money on goods tangible goods. I think I've seen some recent articles that talk about the fact that our shipping capacity and our supply chains were built for a certain level. They were at equilibrium. Now our demand for goods has gone up. There are disruptions because of quarantines. A truck driver or a dock worker was exposed. They can't come to work for a week. Well, okay, you end up with less capacity to unload that. We've got a higher level of demand with the same or less resources to distribute that. It's going to be a long-term effect that's probably going to take a while to unravel itself. I think that's what you're saying.
Gary Steinberg [00:11:20] Yeah. I think, too, that in my background, in my experience, freight, the ports, offloading, freight distribution, logistics, shipping, that's always been fragile in the supply chain. Even 20 years ago dock delays were very, very common. When we work in a just-in-time environment, a lot of companies, especially the larger companies, five or six days has a tremendous impact on the ability to deliver product to your customer. So, even back then we've always had that fragile infrastructure in shipping and logistics, especially when it comes to freight coming out of Asia and China and delivering that product out of the Port of LA or Long Beach. That's a dynamic we've always had, but right now it's even more accentuated.
Gregg Profozich [00:12:20] Okay. Let's shift a little bit to the small to mid-sized manufacturers. We're going to do that by way of talking about larger mid-sized companies and transitioning in, if we will. I think virtually all large manufacturers and many of the medium-sized ones will have people on staff with supply chain in some way in their job title. What are the things that these supply chain people and supply chain departments do at larger companies? What are those roles, and what do they do?
Gary Steinberg [00:12:34] Large companies really look at their supply chains in a strategic way, not as we call a necessary evil. The larger companies really make an investment in their supply chain. It's either through human resources—in other words, developing departments that actually work on strategy and also being able to finance that supply chain strategy. Larger companies look at their supply chain in a different way. They really think of their supply chains as a competitive weapon because the goal of supply chain is to provide or deliver product at the lowest cost possible on time. We also know that supply chains represent the highest cost within a company. I think larger companies realize if supply chain represents the highest cost in the company, we need to support supply chain by making the investment in supply chain with professionals that staff those supply chains. I think that's a critical strategic difference when we look at large companies versus the small and medium-sized companies. They'll have a strategic sourcing department. In other words, that's like strategic purchasing. They would separate strategy versus tactical. We have a strategic purchasing department versus what we call a tactical. In other words, they're the order takers; they're the order deliverers; they're the ones that have daily contact with the suppliers, whereas your strategic purchasing department will be looking out six months, a year, maybe two years out. Are there changes that have to be made? They're taking a more active role on vendor management. They're reviewing their supplier scorecards. They're reviewing weaknesses that they see in non-performing suppliers, and they're going out to replace those suppliers as needed. Another tool that's used quite frequently within large companies is a planning tool that's called SIOP, an SIOP process. The acronym means sales, inventory, and operations planning. What that is, it's a commitment by executive management to have a representative from each discipline within the company to review forecasts, review demand and supply planning, and then within those meetings and those sessions to start reviewing what the risks are to either deliver product, meeting financial forecast, meeting financial profit and loss, and then agreeing on actions to mitigate those risks with the entire management team. In that way, you have the entire company involved in those decisions, and they're aware of the risks within the supply chain. That's a key difference that we see in large companies versus a small and medium-sized company. How often does the owner and the purchasing person within a small company discuss strategy within their supply chain? Only when they're having a problem. We call that reactive. Are you reactive, or are you proactive? I think that's a big difference that I see within SMMs and large companies.
Gregg Profozich [00:15:52] Right. SIOP—sales, inventory, and operations planning—it sounds like you're getting everybody around the table: the salesperson, the demand planner, the production planner, the finance person so that they're all working from the same playbook, all rowing the boat in the same direction, if you will.
Gary Steinberg [00:16:06] That's correct.
Gregg Profozich [00:16:07] These are the targets we have to hit. We've got it funded. We've got the right supply coming in. We know that the raw materials and components are coming in. We can hit all these targets. Oh, we've got an interruption in this element. We can't get this component. How do we shift production to make sure we don't idle production employees and produce something, and before we produce it, make sure sales can commit to selling it? Producing it doesn't matter if you're only going to stock it to an inventory shelf as finished goods. That whole alignment process, it sounds like that's what SIOP is about. Do I have that right?
Gary Steinberg [00:16:35] Exactly true. It's all about the alignment. Something that came to mind when we were talking about this is we always talk about silos. SIOP can at least reduce the silos that we have within the company. That's one of the key points to make there.
Gregg Profozich [00:16:49] You mentioned two things I want to delve a little bit deeper into if we can. One was supplier scorecards, and one was the SIOP process—supplier scorecards. For the example of the 18-person CNC machine shop here in Southern California, or the food and beverage production food processor up in Merced, or the medical device company down in San Diego, I've got 8 to 12 people, but I don't have anybody with supply chain in their title. I don't have an SIOP person. I don't have a strategic sourcing department. But I can probably still do scorecards, right?
Gary Steinberg [00:17:20] Yeah.
Gregg Profozich [00:17:20] I could probably still collect some metrics. There are things I can do even though I don't have a formal process. I could probably still do some things around that. What would a scorecard look like, and what's the simplest one that would have the most effect? I'd imagine larger companies probably having a four-page scorecard. "Well, I want five items on my scorecard because I have a business to run and four other hats to wear." What would I put on this, Gary? What would you say would be the things to look at there?
Gary Steinberg [00:17:44] Well, it would really come down to... The one that's so obvious is on-time delivery. Quality would be another. I think three, how responsive are they to issues when you call them. Do they respond to you? Are they easy to work with? That's not as objective. That's certainly one area that's very important. Cost. Are they maintaining costs? If they're not, why not? Again, we're going back to global issues. We see it today. If I go out to get a quote today, some companies will not commit to cost today, because they don't know the raw material costs. Those factors are something we have to consider. But how true are they to cost? Are we seeing price increases? Are they indiscriminate, or are there real reasons for price increases? Really, any scorecard would be simple. It would be three, four metrics. It really comes back to on-time delivery, quality, and cost. That's what supply chain is all about.
Gregg Profozich [00:18:42] Okay. I could do a simple scorecard if I own my 8- to 12-person operation and just look at those things on my key and critical suppliers, right?
Gary Steinberg [00:18:50] That's correct.
Gregg Profozich [00:18:50] Perfection is prohibitive. I may never get to the one I buy from once every two years.
Gary Steinberg [00:18:54] Right. Actually, you don't really need a scorecard for every supplier. Look at your supply chain. Look at who your critical suppliers are. They're the companies that you want to create a scorecard for. If it's a distributor down the street, we don't need a scorecard for distributors because if I can't buy from distributor A, I can probably have distributor B that I can go... But it's those critical what we call A parts which either they're high cost, high value, or custom. Those are the types of parts that we want to maintain a scorecard for those suppliers.
Gregg Profozich [00:19:30] Okay. Let's talk a little bit more about the SIOP process. Again, I'm an 8- to 12-person operation. I don't have a person sitting around the table for each of the disciplines represented. I don't have a salesperson sitting there. I don't have the VP of Sales. I don't have the VP of Demand Planning. I don't have the VP of Finance. It's probably just me. What do I look at? How do I do my own SIOP process with just me at my desk and get some value from it to make sure that I've got everything aligned? What are the things that catch people by surprise sometimes if they don't look at them?
Gary Steinberg [00:19:58] In that case, you, representing the company, have to take on all the roles within SIOP. But I think it's important. Every company has someone that is responsible for finance. Everyone has a CEO or owner. I think it's still important that the three critical disciplines—finance, operations, and executive management—sit down in a, let's say, predesignated timeframe—maybe it's monthly, quarterly, whatever—and review forecasts, all this information that maybe one person developed. I think you mentioned it. It's getting agreement at the table. It's getting alignment to make sure that everyone is working in the same fashion, in lockstep, and we're not working in a silo fashion. I think in an SMM you just have to create a mini SIOP process. It doesn't have to be as sophisticated with modeling and so on and so forth. It can be just something simple, the old 80/20—look at the 20% of the parts that make up 80% of your business—and just really concentrate on what's important in your supply chain, and to the company, and the business. You can do that and probably do that fairly quickly as opposed to looking at every aspect, every part within the supply chain.
Gregg Profozich [00:21:21] Right. I think that makes great sense. Gary, great information about supplier scorecards and the SIOP process. I'm going to shift gears a little bit here if I can. Let's talk about the disruptions that have occurred in supply chains through the lens of risk management. What is your view of the drivers of supplier risk that are likely to impact supply chains of small and mid-size manufacturers for the foreseeable future?
Gary Steinberg [00:21:42] These risk factors have always been there in the supply chain. Nothing new, even with the pandemic. The risk drivers, really across all companies whether you're large, small, and they come down into four different categories. One is disruptions. That could be a natural disaster like a hurricane, for example, labor dispute, or a pandemic, of course. Delays can be capacity of supplier, raw material delays, poor quality, or transportation capacity. We have forecasting and planning. Do we have inaccurate forecasts? Do we have short product life cycles that cause a lot of impacts in supply chain? Do we have one-time events—sales promotion, seasonality? All these things have potential impact of disruption of supply chain. Last, procurement. Do we have key components procured from a single source? Do we have industry-wide shortages, global shortages? Do we have short-term or long-term contracts? A long-term contract can protect your supply chain. When I say that, what I mean is it might positively impact the ability to obtain parts and materials during a, let's say, disruption. If you have a contract, there's a contractual agreement for a supplier to deliver those parts unless—and I'll emphasize that—there's a worldwide shortage on raw material. With a contractual agreement you have more of a guarantee—never say guarantee—that you're going to get delivery of parts.
Gregg Profozich [00:23:19] Higher likelihood, right?
Gary Steinberg [00:23:21] Correct.
Gregg Profozich [00:23:22] It's not really here until it's on my dock.
Gary Steinberg [00:23:23] That's right.
Gregg Profozich [00:23:25] The drivers are disruptions, delays, forecasting, planning, and procurement. Those are the drivers of risk.
Gary Steinberg [00:23:32] Correct.
Gregg Profozich [00:23:33] Based on those drivers, how should SMMs evaluate risk, and what should they do? What can they do with some concrete steps that they can do?
Gary Steinberg [00:23:40] Well, I think some of the steps would be the same, can be applied across any size company. If we're looking internally, increase capacity. Increasing capacity within your own shop or within suppliers' shops. For example, can they work 7/24? Can they go to two shifts, three shifts? I think it's important to review redundant suppliers and transitioning to redundant suppliers when, again, we're looking at those critical parts, the A parts. Again, that takes a little bit of being proactive and really focusing in on taking the time to spend on finding redundant suppliers if at all possible.
Gregg Profozich [00:24:20] When you say redundant suppliers, I'm hearing that you're saying don't single source your As.
Gary Steinberg [00:24:25] That's right.
Gregg Profozich [00:24:26] Have two, or three, or four people who can make you the exact same thing and know that they're going to produce quality and can deliver it on time. Then you have risk mitigation, right?
Gary Steinberg [00:24:33] Correct. Now, that becomes a little bit more difficult and challenging for a small and medium-sized company because if there's custom tooling involved, that comes with a cost. Honestly, a lot of companies cannot afford to duplicate tooling. This one would have to really be what I would consider one of those SIOP discussions with the president and CEO of the company about making that type of investment. That one's a little bit more challenging for a small or medium-sized company.
Gregg Profozich [00:25:02] It may not be realistic to implement it, but it's certainly something to think about and talk about, right?
Gary Steinberg [00:25:08] That's right. It's correct.
Gregg Profozich [00:25:09] At least consider it. You may rule it out, because it's just cost prohibitive, and that's okay, but then you know where your risk is. You're acutely aware that there's a risk there, right?
Gary Steinberg [00:25:18] You're identifying that as a risk, and it's just going to be a risk. You're not going to be able to mitigate that risk.
Gregg Profozich [00:25:24] In my simple case I've got five A parts, and four of them are redundant; one's not. Well, if there's an interruption, I know what that means now. I made a decision not to do anything about it, or I couldn't do anything about it, but I know what it means, and I'm not surprised, and I probably have already thought about if that happens, what would I do. That's to increase capacity and transition to redundant suppliers. Are there other risk mitigation ideas?
Gary Steinberg [00:25:44] The next one is one that we do quite a bit is increase inventory. We look at min/max levels, safety stock levels, how much can a company absorb in terms of increasing inventory because that becomes another financial decision. Again, we identify the risk. Do we want to increase our inventory? Can we double, triple our inventory? What financial impact does it have? Because at that point it's a two-fold financial decision. One is the investment and actually making the purchase, which is a one-time event, but the long-term event is having that cash sit in inventory for a longer period of time. Do we have the ability to carry that inventory? We always call that a balance sheet issue versus a cost of goods sold issue. There's two different events, but they both have financial impacts on a company.
Gregg Profozich [00:26:38] Are your safety stock levels adequate for the amount of risk that exists in your supply chain and the amount of risk that exists in your industry and in the economy?
Gary Steinberg [00:26:48] Correct. For example, we talked earlier about not investing in that second source because of the custom tool. As an option, do we look at doubling or tripling the amount of inventory from that single source supplier and carrying that inventory versus making the decision to invest in another tool and finding another supplier? It's all these things within supply chain that makes supply chain so intriguing and interesting for somebody like myself, because there's always decisions to be made. There's always decisions, at-risk decisions, whatever the case may be, but it becomes very fascinating of how you really manage your supply chain.
Gregg Profozich [00:27:32] Yeah. They're decisions that aren't binary. They're all probability based, right?
Gary Steinberg [00:27:36] That's right.
Gregg Profozich [00:27:37] What's the chances of this happening, and if it's going to happen, then it is better for me? It's a lot of art and science together.
Gary Steinberg [00:27:43] I think the other point of that, Gregg, is that you have to consider the customer. How do we satisfy the customer? Can the customer actually wait for our parts? Again, maybe we're single source versus can the customer go to another supplier down the street and get the same part? There's different variables that have to be considered when you make these types of financial decisions in your supply chain.
Gregg Profozich [00:28:08] Okay, so mitigating risk. We talked about increasing capacity, transitioning to redundant suppliers, and increasing inventory. Is there a fourth?
Gary Steinberg [00:28:15] Another one would be increased flexibility. You could prioritize costs over flexibility for high volume parts with predictable demand, for example, but for low volume with uneven demand you prioritize flexibility. It might be more costly, but go to different suppliers for those uneven demands that have lower volumes. Another risk mitigation activity is aggregation. Increase aggregation as unpredictability grows. This can apply to do you have multiple sites; do you aggregate inventory; do you aggregate orders to one supplier. There's a lot of different things we can consider an aggregation.
Gregg Profozich [00:28:57] Gary, the mitigating risk, we've got a couple of items now. How can an SMM balance cost with risk and supply chain resiliency? Let's get back to resiliency a little bit.
Gary Steinberg [00:29:07] I think it's simple. SMMs need to dedicate more resources to supply chain and be proactive in assessing their supply chain, and just being able to identify how their supply chains can be resilient. We can apply a lot of the principles we've already discussed, but unless you identify what those are, you're never going to know. You have to uncover those risks in your supply chain.
Gregg Profozich [00:29:31] In thinking about this list of mitigating risks, how does reshoring or nearshoring fit in?
Gary Steinberg [00:29:36] I think we discussed this earlier. All the freight delays that we're seeing not only in the harbor but containers, freighters, and capacity that's available. When we look at domestic reshoring or domestic sourcing, it starts with looking at total cost of ownership is one thing. You may be paying X in China, but that's for the part. We need to start considering what is the cost of delivering that part, transporting that part across the ocean, considering all the delays, considering all the follow-up, the calls, all the inventory they may have to absorb, all those factors. What's the total cost of that versus having a supplier that is in the same town, or down the road, or can deliver parts in one or two days? That's the first part of reviewing domestic reshoring and sourcing. I also look at reliability in the supply chain. What's the reliability in a domestic versus an offshore supplier? Can we eliminate shipping delays? Do we look at quality improvement? More importantly, can you build a better relationship? Can you trust that supplier? Because we're American, you deal with a US company, a US manufacturer, our language is the same, culture is the same. We relate at a much higher level. Many times, if you really want to get involved in very detailed discussions with an offshore supplier, you really need somebody that can help you by interpreting and actually understanding the language because it's not only language. Someone will say yes, but yes means a lot of different things in a lot of different cultures. It's important. I think that barrier is much less; it's reduced when we talk about US suppliers. That's another important aspect. I think that opens up a lot of ability to have more access to suppliers. You can make a quick phone call; you can have meetings; you can be in person; you can walk through their facility. Those are the types of activities that are not as accessible when you work with offshore suppliers.
Gregg Profozich [00:31:47] Makes a lot of sense. Gary, lately, I've been hearing the term supplier scouting a lot more frequently than in past years. Talk to us a little bit about what supplier scouting is and how it can benefit manufacturers, especially SMMs.
Gary Steinberg [00:32:00] Supplier scouting can really benefit SMMs and other companies in a couple different ways. It's locating alternate or redundant suppliers to eliminate dependency on single sourcing. Also, I think where supplier scouting can help we talked about earlier, looking at reshoring and nearshoring key suppliers within your supply chain. Those would be a couple areas that I could consider being very, very important to supplier scouting. That's a separate discipline within the supply chain. It's really trying to find sources for various situations within a supply chain.
Gregg Profozich [00:32:40] Okay, so I've got a supply chain. Again, I'm the 8- to 12-person manufacturer in San Diego, LA, or Central Valley. I've got a supply chain in place right now that's serving me. I bring you in to do some supplier scouting to do the legwork for me of looking for alternate suppliers that could meet my product quality needs and my volume needs?
Gary Steinberg [00:33:01] Correct. Again, we talked about a little bit of this earlier. In a supply scouting role, we're really an extension of your company. We go in, and we help you. We're there to help you actually, as you said, do the legwork, do the research, and find those other suppliers. What we could do in a scouting role is help you identify what commodities, materials that we should be looking for alternate suppliers for, and maybe we ought to consider reshoring. That's a starting point. Start with a data point and move through the actions to help with that data point where the risks are. In the scouting role you could help a company locate those new suppliers.
Gregg Profozich [00:33:51] That makes a lot of sense. Most small to mid-sized manufacturers don't have a lot of extra bandwidth to do these things on their own. If they don't have the skills, it makes sense to bring in an expert to do that. I think the last question here is: what can a small to mid-size manufacturer do to advance its supply chain strategy? What are some concrete steps they can take?
Gary Steinberg [00:34:12] First of all, they have to identify their risks in the supply chain. It would mean for a small and medium-sized company to dedicate a resource to review the risk in the supply chain. What would that mean? That would mean doing a self-assessment of your supply chain. Look at your tactical, look at your strategic issues. Look at the impact. Is it impacting you internally, or is it impacting you externally, your customers? That's a starting point, what I call using a self-assessment tool. Then what I would recommend is a small or medium-sized company should get a mentor. Maybe that means consultant to many people. They need a mentor to help them design a strategy to mitigate those risks identified in the supply chain. Those are the activities I look at. Then I prioritize. What's the most critical? Take the old 80/20 rule. Look at the most critical issues and critical risks in the supply chain, and then work on those issues and take actions. I think a mentor could lead a small to medium-sized company and the person who's responsible for the supply chain work through those issues. That's where the mentor would be a valuable asset to a small or medium-sized company.
Gregg Profozich [00:35:32] And also be an accountability person, I would guess, right?
Gary Steinberg [00:35:34] Right.
Gregg Profozich [00:35:35] Metrics coming in once a month. I got to have my stuff done when Joe shows up.
Gary Steinberg [00:35:38] Or developing metrics, things that you haven't had before as a basis to start with.
Gregg Profozich [00:35:44] You started off with identifying the risks from the supply chain and talking about naming a resource. Is it a full-time job, or is it just naming a resource, as in the owner is going to look at this, and he's going to spend two hours every month? What would that look like?
Gary Steinberg [00:35:56] It takes a lot more than two hours a month. It would be a dedicated resource. Probably take a few weeks, maybe a month full-time to really get involved, do the research, and really identify the risks in the supply chain.
Gregg Profozich [00:36:11] Got it. It's a resource who has expertise, but it's not a full-time staff role. It's not adding a headcount.
Gary Steinberg [00:36:13] No, I wouldn't add a headcount. The recommendation here would be take the person in the role today that's actually doing the purchasing or supply chain role. Take him out of the every day; bring somebody else in to do the every day; and have him do more of this assessment.
Gregg Profozich [00:36:32] And work with a mentor.
Gary Steinberg [00:36:33] That's right. That supply chain person could, say, assign even their assistant. Or if there's an admin in the company, we could assign that administrative person in the supply chain role for that three- or four-week period to do that assessment.
Gregg Profozich [00:36:51] That makes a lot of sense. Gary, we've covered an awful lot of ground today. Is there anything else that you feel is important to cover before we wrap up?
Gary Steinberg [00:37:00] There's one thing that I think is really a key takeaway from today's discussion. The actions that your organizations take today around supply chain mitigation will prepare your company for the next supply chain disruption, because we know it's going to happen. Just like our pandemic, we all want to prepare for PPE for the next pandemic. Well, same thing with supply chains. I've been in supply chain for 40 years. This particular pandemic has been more severe, but we always go through supply chain disruptions. We've all seen it before, and we've seen it's every two or three years. Again, I think the key point is take actions today that will prepare you for the next supply chain disruption.
Gregg Profozich [00:37:43] Okay. Great advice. Gary, I'm going to try to summarize some of the things that I captured in notes as we talked. We started off our conversation with contexting it within the pandemic and what the effect is on supply chain. We talked about the fact that 75% of the large companies have a supply chain that's been negatively impacted. Worker shortages, reduced sales have been some of the by-products of that, disruption in source of supply, not being able to get materials, et cetera, et cetera. Those come from a lot of times the constraints in shipping, both international shipping and domestic shipping. A huge premium right now on renting out a container ship, numbers of times—5, 6, 8, 10 times more expensive than they were two years ago. There's a higher volume of material coming through with less people to man the ports, less people to drive the trucks or the same capacity, just not enough capacity. We've got these delays that are building up. Because of that we've talked about the fact that that's not going away and, as you just mentioned, the next disruption will come. When will it come, and will you be ready? One way to think about that is to look at your supply chain resilience, your ability to resist and recover from negative events or disruptions in your supply chain. Think about resilience. Think about the steps you can take. You talked about the fact that supply chain is a closed loop process, and don't ever forget that. We're taking in, we're doing planning, we're purchasing materials, producing products, we're shipping them to customers, and then we're getting feedback from customers on next demands, that feedback into that whole planning process. It's a closed loop system, and any interruption along there is going to have some effects. We talked a little bit about supply chain, the function within larger companies, how supply chain is a strategy for many companies, because supply chain represents the highest cost to most companies. When you think about the cost of procuring all the raw materials and all the goods, and transforming those, and shipping those out, and moving them all along to the end customer, that's the largest source of total costs in the company. Larger companies have HR aspects, developing departments and actually building the organization to staff it correctly. They take a look at the finance and the strategy from that perspective. They take a look at seeing how to make competitive advantage of it, having a strategic sourcing department that's looking at longer term relationships and contracts, locking in sources of supply to mitigate—not guarantee but mitigate—the chance that you won't get the product you need 18 months from now, two years from now. Smaller companies have the same set of challenges; they just don't have the staffing, the people. We talked about a couple of simple things that might be able to help them. A small company can do a supplier scorecard. Take a look at on-time delivery. Take a look at quality. Take a look at cost. Take a look at the relationship you have and your suppliers' responsiveness to issues. Give them a rating. Do this on your critical suppliers—only your highest cost, highest value, or your custom products, not on distributors, not on the low volume stuff. Just keep it focused. Use the 80/20 rule, and apply it that way. The second thing was the SIOP process—sales, inventory, and operations planning. That really takes a look at balancing the sales plan against the demand plan, against the operations and production, manufacturing plan against the distribution plan, and having all of those aligned so that the organization is all rowing the boat in the same direction. So, the SIOP process is another thing that a small to mid-sized manufacturer can do. He's not going to have a VP of each of those titles—the VP of Demand Planning, the VP of Finance, et cetera. It might just be him and one person—or her and one person—sitting around a table, but it's important to go through that function and to have those conversations, because it makes us think deeply about the other things that are very, very important. We talked a little about risk factors, the risk factors to all companies regardless of size, one being disruptions—a hurricane, a labor disruption or strike somewhere else around the world. We talked about the second one being delays, supplier delay—a delay at the port, a lost container. Forecast and planning. Do you have accuracy in your forecast? Well, no forecast is totally accurate. There's always going to be some variability there. Do you have short cycle products? Is there seasonality? How do you account for all of that? The last one being the procurement piece. Are you single sourcing? Are there global shortages of a critical component or raw material that's needed to produce something you need to buy? Do you have short- or long-term contracts? After those risk factors we talked a little bit about risk mitigation. You covered a number of areas. Increasing capacity. Do your suppliers have the ability to increase more shifts or give you more of their capacity? Can you get more if you need more? Transition to redundant suppliers. Having things not single sourced, especially your A products in your ABC analysis. Increasing your inventory. If you carry more safety stock, it's a hedge against supply and demand variability. Increase your flexibility. Go to other suppliers for the lower volume parts, and diversify that a little bit. Talked about looking at aggregation. We talked about reshoring and nearshoring, really focusing on TCO, total cost of ownership. We touched briefly on supplier scouting, which is having an outside resource come in and help you locate alternative or redundant suppliers, and also take a look at potentially costing out what nearshoring or reshoring might look like, and let you know if it would make sense for your business. We talked about how small to mid-sized manufacturers can advance the supply chain strategy. That's the last thing we discussed. Number one, ID the supply chain risks. Dedicate a resource to spend a couple of weeks or months on it, and really do a comprehensive plan. Get a mentor to assist to help with a different perspective and to help with moving the process along, and then really focus on prioritizing. What are the critical parts and the critical risks that exist, and really pull those together into a comprehensive document that you can look at and use as a reference to make plans and put mitigation steps in place. Gary, that's what I captured from our conversation. Anything missing? Anything more to add?
Gary Steinberg [00:43:02] I think you captured it very well.
Gregg Profozich [00:43:04] Thank you.
Gary Steinberg [00:43:05] Excellent job. Excellent.
Gregg Profozich [00:43:07] Well, Gary, it was great to have you here today. Thank you so much for joining me and sharing your perspectives, your insights, and your expertise with me and with our listeners.
Gary Steinberg [00:43:14] Great, Gregg. Thanks for sharing. I appreciate your insights, as well. It was a great session. I really enjoyed it.
Gregg Profozich [00:43:21] Thank you very much. To our listeners, thank you for joining me for this conversation with Gary Steinberg in discussing supply chain resiliency. Thank you so much for being here today. 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 advisor, 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 Institutes 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.