High-tech discrete manufacturers lacking supply chain innovation

Posted by Ross Perkins on 01-Oct-2018 16:41:10

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High-tech discrete manufacturers are starting to feel a very real and uncomfortable truth; the world has changed and the majority of supply chains simply have not innovated quickly enough to succeed effectively.

In an industry where the need for high levels of product customisation meets an ever-increasing demand for faster time to market, many discrete manufacturing supply chains are starting to burst at the seams.

The Situation

  • Consumers are expecting regular and rapid innovation at a pace never seen before. It is no coincidence that one of the most commonly used phrases in supply chain at the moment is ‘innovate or die’. Most supply chains have not developed at the same pace of innovation.

  • High-tech consumers no longer want products quickly, they want them now. A staggering 88% of consumers are now willing to pay for same-day or faster delivery (PwC 2018) and this trend is only set to increase.

  • Products in this sector have grown vastly more complex - the number of BOM variations and therefore manufacturing processes required to support production has grown exponentially. This has been driven by both shorter product lifecycles and the need to cope with greater levels of product customisation.

As a result, high-tech discrete manufacturers have been forced to work with a far greater number of vendors across the supply chain network to create flexibility in the supply network and reduce risk – both critical factors when trying to meet widening and more challenging demand. 

These trends can have devastating consequences in an industry where lot sizes are becoming smaller, technology is becoming obsolete quicker, product life cycles are becoming shorter and regulatory changes are more frequent.

The Pain Points

Put simply, high-tech supply chains are not keeping pace and struggling to cope with demand and supply due to a lack of network visibility and collaboration in a world that is changing rapidly. This leads to many pain points:

  • Multiple spreadsheets and other inputs have taken over the supply chain planning process and no one has a single source of truth. This can be incredibly dangerous when the majority of these spreadsheets are managed manually; accuracy is drastically reduced and decisions become increasingly error prone leading to inefficient and costly decision making.
  • Inventory visibility and stock management has become increasingly difficult to control across the entire supply network leading to:
     
    • The inability to track KPIs accurately causing confusion and a lack of trust from leadership
    • Too much stock on hand, wasting precious capital due to poor demand and supply accuracy
    • Long lead times and a lack of agility, especially when mass production is dealt with off-shore and accurate communication is needed for success. This leads to an ineffective postponement manufacturing process creating poor customer service levels and tense vendor relationships
    • The inability to track component quality leading to poor finished goods and missed SLAs
    • A lack of flexibility and the inability to move at pace. Companies are no longer in control of their brands visibility/image due to the power of social media - not being able to react quickly is incredibly detrimental when factors outside of your control can create or eliminate demand in a matter of days, sometimes hours

 The Solution

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There is a very powerful solution available for high-tech discrete manufactures wanting to alleviate these debilitating pain points. It’s something only a select few brands in the sector are doing currently and they are keeping it decidedly quiet. Why?

Because the business benefits they are achieving is outstanding (SAP 2018):

  • 7% revenue growth 
  • 23% less revenue loss due to stock outs
  • 12% reduction in costs
  • 12% lower days' inventory outstanding
  • 2% improvement in cash flow
  • 11% cost increase avoidance
  • 25% lower FTE costs
  • 3% lower logistics costs
  • 7% revenue loss avoidance

They have achieved the above results by implementing a supply chain vendor collaboration tool.

A vendor collaboration tool digitises all supply chain and mission-critical business processes across the extended enterprise into one single source of live information. It integrates with both the ERP and supply chain planning systems putting everything within one digital network.

All the highly complex demand planning, component requirements planning and associated changes common within the high-tech discrete manufacturing industry remain in the ERP and planning system as before but this information is now shared digitally with suppliers, live and in real time through the vendor collaboration tool.

Ultimately, it gives high-tech discrete manufacturers the ability to work quickly, easily and effectively with their vast network of contract manufacturers and suppliers across the entire supply chain and execution process. Traditionally, this is where companies in this sector have failed.

By implementing such a tool, high-tech discrete manufacturers gain several business-critical advantages that their competition simply do not have: 

  • Shared production forecasts, quality, inventory and order information with vendors and receive their commit in near real-time. Improved visibility for all partners across entire purchase order process hugely increases accuracy and vastly reduces inventory levels. Supply and demand can be balanced, KPIs can be trusted by leadership and precious capital is not wasted, saving the company significant time and money.
  • Become agile and flexible. React quickly to short term demand and supply changes, minimise lead times significantly and enhance relationships with your vendors. Customer service levels improve, SLA’s are met and suppliers become part of the solution, not the problem. 
  • Anticipate and alleviate issues quickly before any major damage is done using real-time alerts moving you from being largely reactive to proactive. This is incredibly valuable for companies invested in off-shore mass production processes and postponement manufacturers. 
  • Help suppliers plan their capacity in advance – all to your benefit. Bring new suppliers on-board incredibly easily with multiple options for integration. As market factors force high-tech discrete manufacturers to work with more and more suppliers, they can easily be integrated into the digital network, not allowing this to impact business or supply chain performance and minimising risk. 

A vendor collaboration tool implemented effectively is a secret weapon for high-tech discrete manufacturers. They alleviate all of the pain points that have plagued the industry for years and finally allow for the alignment of supply and demand planning over multiple time horizons. The benefits speak for themselves.

So, which one would we recommend? Although there are several tools available in this growing space, we would suggest exploring SAP Ariba’s Supply Chain Collaboration tool first and foremost: 

  • SAP Ariba built this tool off the back of managing the world’s largest business network with USD $2.1 trillion in goods and services traded each year. This credibility speaks for itself. 
  • Microsoft lowered inventory by $200m by implementing SAP Ariba solutions (SAP 2018). 
  • Top-performing companies using this method report days' inventory outstanding (DIO) of 29, while the average is 65 days' (SAP 2018).

 Summary and Next Steps

If you are a high-tech discrete manufacturer reading this and wanting to take action, you are on the path to transforming your supply chain and moving at the pace of innovation. You are likely to succeed.

If you are reading this and decide you might address these issues at a later date, this is where you will likely fail. The pace of innovation will not wait, especially for a supply chain that has neither full control nor visibility over a network which has grown significantly in size and complexity.

For more information on how we are helping high-tech discrete manufacturers navigate this change and to learn about our free half-day vendor collaboration workshop designed to point you in the right direction, get in touch today.

Ross Perkins

Business Development Manager - Olivehorse Consulting

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