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News   June 9, 2023   by Adam Malik

How manufacturers are changing their operations

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Fed up with constant geopolitical posturing and one-upmanship, manufacturers are finding new ways to avoid potential supply chain hold ups and challenges.

One is to move away from large single factories to meet global needs to smaller ones plotted around the world, observed Tom Mayor, partner at management consulting firm Kearney.

“You’ve got tit-for-tat back can forth across the Pacific today. We keep escalating. When we escalate, the other side escalates. When they decided to throw on some tariffs, we respond by more aggressively,” he said during the recent Motor & Equipment Manufacturers Association (MEMA) Aftermarket Suppliers Global Summit in Miami.

“That is a really, really ugly place to be. It’s going to continuously disrupt our supply chains if we continue to operate the way that we have in the past.”

Mayor dubbed the current system single-factory-to-the-world. “They’re moving from global supply chains, to what I describe as multi-local supply chains. So multiple sources or multiple facilities … in different geographies, that they can cross support with.”

That gives companies a whole lot more flexibility. But, they’re also having to become smarter businesses when it comes to supply economics and process economics so they can effectively manage a multi-partner system to provide the same effective delivery costs as that factory-to-the-world setup.

“So I had to give up scale but now my supply chain team has to be smarter, my contracting teams have to be smarter, my procurement teams have to be smarter about how the economics work inside of my supplier facilities,” Mayor explained.

This is a movement away from so-called just-in-time manufacturing that aims to provide the lowest costs. Now, it’s about ‘just in case’ and finding the best costs.

That’s leading to warehouses set up in front of manufacturing plants and inventories being stored at ports.

“We’re starting to see dual sourcing or triple sourcing may raise the cost a point or two,” Mayor said. “But it avoids expedited shipping. It avoids air freight. It avoids months and months and months of lost sales that everyone in our industry saw over the last few years.”

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1 Comment » for How manufacturers are changing their operations
  1. Bob Ward says:

    By doing this these companies will sacrifice supply due to multiple international factors that could effect manufacturing. Unstable foreign governments and no control over shipping may cause disruptions. What ever happened to bringing manufacturing home?

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