Nigel Rodger, Director of Sourcing, EMEA, Plexus discusses the importance of strategic sourcing in the manufacturing industry.
Cost pressures on manufacturers continue to increase. Combined with ongoing uncertainty in the macroeconomic environment, this is driving manufacturers to look at how they can guarantee efficiency by establishing a differentiated supply chain balancing risk mitigation and spend leverage. Closely managing the supply chain makes this achievable.
Strategic sourcing is one of the key components of supply chain management. Simply put, it is a continuous cycle of analysing supply partner selection, with the aim of competitive total cost of ownership (TCO) whilst minimising supply chain risk. Selection, collaboration and relationship-based partner selection ensure that the needs of customers are met throughout the entire lifecycle of a product.
What does this mean for Plexus?
In terms of how this looks at Plexus, our supply chain sourcing strategy has two main components, the first of which is global electronic sourcing. Engagement with key suppliers via our sourcing offices in China and Malaysia allows us to build close partnerships with key suppliers. These partnerships help us secure flexibility and pricing efficiency in our supply chain. Electronic components are essential commodities in this market, so we leverage spend across multiple common manufacturers to guarantee price sensitive assurance of supply.
Our global electronic sourcing is complemented by our regional custom engineered components (CEC) commodity management. Regional CEC commodity management is designed to provide localised custom solutions close to the point of consumption. This approach balances technical capabilities and price through the use of select sources that allow greater agility during the design phase, enabling lowest total cost of ownership.
These two components work so well together due to our strategic sourcing approach. Both components have been designed to drive the most cost-effective and risk-averse performance possible.
Of course, it’s not a simple process. There are complexities to deal with for any manufacturer trying to implement strategic sourcing that can sneak up on them, or that are simply out of their control.
To take a simple example, once a product is finalised in the design phase, its materials are set in stone. If the customer changes their mind, or a supply source is unable to provide an order on time, how will the supply chain respond? Are there alternative sources for a particular material or product, or can it be circumvented entirely? And will your analytics leave you scrambling for a response, or will you be informed ahead of time?
Furthermore, it’s impossible to fully control the impact of global markets. From hypothetical Brexit scenarios to the trade war between the U.S. and China, manufacturers need to carefully consider how their supply chains should react or respond to shifts in the global economy. Stress testing should certainly be a consideration to explore where potential weaknesses are, with the results dictating the solutions that original equipment manufacturers (OEMs) need to consider in order to guarantee cost-effectiveness and timely delivery.
How to solve them
An OEM can navigate these different forces as long as its preparation is extensive, and it has the correct tools at its disposal. By combining different resources and teams and deploying technologies that allow them to keep a finger on the pulse of the supply chain, it’s possible to pre-empt issues well ahead of time.
One element of this is provisioning for close collaboration and/or the integration of different teams supporting the supply chain. For example, our supply chain team is integrated with our engineering solutions team to share knowledge and ideas while accelerating communications. Allowing the two to synergise brings the products to market faster, develops new technologies on the ground and helps to extend the lifecycle of products – all of which facilitates value creation within the supply chain itself.
Beyond this, any manufacturer needs the technological support to compartmentalise and analyse supply chain data in order to mitigate supply chain risk. For example, utilising a supply chain algorithm like Plexus’s ALARM (assembly level analytics of risk management) system enables a design for the manufacture team to analyse any threats both internal and external to the supply chain. The algorithm weighs different risk factors to provide a component score that offers insight into the risk factors facing a particular build.
If you can mitigate or solve these issues, an effective strategic sourcing strategy means that you can identify interdependencies amongst risk elements in the supply chain and tackle them accordingly. Building an environment in this way allows you to build multiple fail-safes into the supply chain to pre-empt issues before they arise, ensuring as efficient a reaction as possible to any issues.
Identifying potential faltering points also allows OEMs to predict the time-to-market dependencies with much greater accuracy. This helps to reduce potential costs and guarantee that the products meet the requirements that have been agreed during the design phase, which is the ultimate aim for an OEM.
Looking forward, these benefits are only set to grow as Industry 4.0 and the underlying digitalisation of manufacturing multiplies and complicates the data sets from which manufacturers can benefit. The advent of IoT is making the manufacturing floor increasingly autonomous and more efficient, and we expect to see machinery develop in a way that communicates more real-time data to engineering, design and supply management teams to empower them during the process.
As these machines become more capable of speaking to one another and integrating with different teams, we’ll also see these teams integrate more fluidly and effectively. The colossal volumes of data generated are valuable in more ways than one to multiple groups. Strategic sourcing will make an increasing and positive impact on cooperation and data sharing as OEMs look to produce products on time, in a cost-effective way, with minimum risk.
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