Are Your Suppliers Behind The Times?

Although the COVID-19 waves in the procurement sector continue, manufacturers have reason to be optimistic. New data from the Institute for Inventory Management (ISM) show that the overall economy has been expanding for more than a year and all six major manufacturing industries, including goods production, recorded a slight to strong increase.

Manufacturing progress was clearly good, but a recent Fox Business story stated – and the ISM report repeated in June – that tied suppliers have trouble keeping up.

This concern should encourage manufacturers to reconsider whether their supply base is ready to act immediately and fulfill new orders.

Evaluate the supplier’s capacity and strength

Manufacturers conducting this assessment are likely to find that at least some of their Tier 1 suppliers have experienced COVID-related problems, such as lack of materials, rising material prices and staff shortages, making it difficult for them to respond to growing customer demand. It can be beneficial for OEMs to build relationships with new supply partners who are in a better position to protect against scarcity or consolidate their supply base, and rely on companies that have proven experience and willingness to drive with higher capacity.

Before receiving notification that a supplier is unable to complete an order as expected, OEMs may ask the following questions to assess the strength of their suppliers and assess the suitability of potential new suppliers:

1. Does the supplier have a diverse customer base?

Suppliers who acquire a high percentage of companies from OEMs are more likely to take the lead in this job and jeopardize other projects. If the business of a large customer is less important, the supplier may have difficulty doing other work – or even staying in business. When inspecting new and new supplier partners, OEMs should ask what percentage of companies customers share.

2. Does the contractor have the capacity to respond and adapt to new work?

Manufacturers who are willing to accept new projects with short notice are likely to be the ones who have developed and followed a defined growth strategy. These companies identify the industries that are best suited to leverage their core competencies and have existing processes that are readily available to respond to and be able to manage relevant business opportunities. Will the supplier demonstrate a “no surprise” commitment? At present, shortages of raw materials are common in the manufacturing sector. However, trusted supply partners have the expertise to anticipate, control and manage processes to identify potential supply chain issues and address them in a timely manner.

These supply partners will also adhere to supply chain strength plans that reduce the risk of non-compliance with the manufacturer’s schedule. It is best practice that the supplier partner should have two or more strong relationships with reputable suppliers of all goods and should trade in each, enough to gain attention.

In more unusual cases of delay in receipt or inability to purchase material, the selected supplier should be the one who immediately initiates internal communication with customer service, production and plant managers to find possible options. The supplier must also provide the customer with an in-depth view of the problem, explain the problem and recommend a solution.

4. Will the supplier receive the required certificates on time?

If the potential supplier partner does not have all the necessary industry certifications as a manufacturer of heavy equipment, there is no need to terminate the transaction. Experienced supplier partners have previously obtained a number of environmental, safety and ISO certifications. Following their existing routine processes, it will streamline their ability to obtain all the necessary additional certificates and meet the specifications of individual manufacturers.

5. Is the supplier ready and willing to invest in people, processes and technologies?

To benefit the equipment manufacturing ecosystem, OEM suppliers need to reinvest in tools and teams that support efficiency, competitiveness and future growth. Over the last 2 years, it has not been uncommon to invest in multi-million dollar machining systems for flexible manufacturing that reduces set-up costs for customers, reduces the need to operate certain parts of multiple equipment, and expands the size of product available to OEMs.

Future supplier partners should also be able to target investments and technologies for project management staff who appropriately streamline, engage, launch and manage new projects and project changes. Depending on the need of the OEM, the supplier partner must demonstrate additional flexibility and cooperation mentality, including the willingness and ability to achieve efficiency using the manufacturers’ equipment on site and will serve as the basis for its production.

The shortage of materials is expected to continue in the coming months. Evaluating their world-class suppliers and adding new relationships between suppliers and partners where additional capacity and supply chains are needed to meet expected demand can help OEMs manage uncertainty.