The June 20, 2010, Wall Street Journal offered a terrific insight into a rather daunting challenge facing business: “Factories Grapple with How Fast to Ramp Up.”
No one wants to commit dollars to inventory for which there may be no customer yet companies don’t want to get caught flat-footed and be unable to support their customers either. While it may be difficult to increase inventory turns, you don’t want inventory turns to spin out of control.
Here is what many manufacturing companies are facing today:
- After idling capacity, manufacturers are facing a significant challenge aligning supply with an unknown and unpredictable demand and, therefore, meeting customer commitments.
- Companies have leaned and downsized to the point where they can’t respond in a heart-beat to unexpected demand without negatively impacting other customer relationships.
- Tight supplies negatively impact end-product availability which shifts revenues to other producers or forces delay in revenue growth.
- FedEx is seeing an increase in its overseas airfreight business to try to take time out of the supply chain.
This is quite a conundrum. In light of these factors, what should manufacturers do?
- Manufacturers need to align supply within what is considered by the marketplace to be a “competitive lead time.” This metric is often not well-understood by the manufacturer or its customers. The best practice is get alignment on and then do what you can to meet customer expectations.
- Communicate closely with customers to align supply with demand. There can’t be too much communication here.
- Communicate closely with suppliers about your needs. There can’t be too much communication here.
- Explore new sources of supply to back up your current suppliers. Spread the wealth and spread your risk.
- Look at the macroeconomics and consider if the actions you are taking or planning are prudent in light of other economic factors you are seeing.
- Look for ways to change fixed cost into variable costs: outsource non-core functions.
Dave Gardner, Gardner & Associates Consulting
© 2010 Dave Gardner