‘The corona pandemic caused supply chain disruption in many industries. Even before that, there were disruptions from, for example, the trade war between China and the US. And recently the Evergreen blocked the Suez Canal. Besides long delivery times, we have to deal with rising raw material and container prices. A wake-up call for many companies to refocus on their supply chain strategy. What are the implications of this situation for the product development process? To reduce risk and remain agile, we will have to start thinking and anticipating more ahead. What strategies are out there?’
Earlier purchasing
‘To stay in control, many of our customers choose to order parts with long lead times earlier. This creates a challenge in the development process. If you make a product with 200 parts and you know that five of them have a long delivery time, you have to start buying those five earlier. Even before you can or may “freeze” the design. If things change around the fit of those five parts on other parts, you can’t adjust that once you’ve already bought it. That means not only a design risk but also a quality risk because the product has not been fully tested at that point in the development process.’
Plan A and B
‘In the bicycle industry, we are seeing tremendously increased delivery times. As a consumer, you now even have to wait a year for a bicycle you order. A strategy used in this industry to spread risk is to double-buy poorly available components. As a result, you have to develop a plan A and plan B for some components, fitting bikes to the components from different suppliers. Both parts must then fit the surrounding components, and both bike versions are then fully tested.
We also see this strategy in the electronics industry. When there is a risk that suppliers cannot deliver, a second supplier is sought. Again, the consequence is to test and co-certify both versions. Both suppliers then appear in the certification list.’
Resources
‘A disadvantage of ordering from multiple suppliers can be that it makes you a (too?) small customer to consider. Some companies started buying their own raw materials as a precautionary measure to deliver this to the supplier when they are short. What I see more and more is that companies are starting to think with their suppliers and make their order forecast known earlier, so that raw materials can be purchased on time. Another possibility is to place and pay for an order early, but send the final design drawing later. This creates certainty in terms of raw materials and you lose less freedom in your design process.’
Alternative material
‘In the construction industry, a certain type of (Douglas) wood was no longer available. A construction company that had included this wood in a specification developed an alternative. They stained other types of wood and compared them for durability and quality. Because the company could prove that the alternative had the same lifespan, they could still build according to the rules.
Similarly, you can think about replacing an aluminum part with a plastic part early in your design process. Obviously with a different geometry, but with the same functionality and strength.’
Far away or close by
‘More and more companies are considering, after the globalization of the past 50 years, bringing business activities back to or near the home country or location of assembly or sales. So-called reshoring has many advantages: shorter transportation, equal time zone and Western communication, you can produce more easily just-in-time, with a faster time to market and possibly better service and quality management. Although I actually have very good experiences with quality in China as well. An important point is that local production is better for the environment and therefore for your brand image.
A difficult issue, especially with labor-intensive products, remains the level of Western wages. Some companies have moved production from China to Vietnam. Although Asian wages are also rising steadily, they are not yet comparable to Western wages. In addition, mentality plays a role. With Western companies it is easier to communicate, but when you place an order you do not infrequently hear: you may join the back of the queue. Whereas if you order something in China today, they will make it tomorrow. They are very flexible in scaling up capacity: Chinese work very hard 6 days a week and go on in the evening if necessary. A big advantage of reshoring is that you become less dependent on conditions on the other side of the world. But it is a long-term strategy, because you will still have to invest in a factory closer to home first.’
Partnership
‘To reduce risk and get as much control as possible, I would advise building a strategic partnership with key suppliers. If you put a lot of work there, you are a big customer for them and they are also willing to run harder. My experience with dedicated suppliers is that it works more pleasantly when you see each other as partners. If you have a good relationship with such a supplier you can ask: can you buy in advance where there are shortages? Or, for example, can you produce more and keep some in stock? They can then be confident that the raw materials they buy will actually be used for your new order. This assurance is important, because I have also experienced that a supplier himself took the risk of buying parts in advance, while the customer later decided that they would not continue with that part after all. If you make clear mutual agreements, including about who takes what risk, a partnership can work very well and provide stability.’
