How manufacturing software can help your supply chain
Common supply chain problems and how to solve them
Manufacturing global supply chain issues have made headlines of late. Whether it was the Suez Canal blockage of 2021, the semiconductor shortage (which itself was as a result of the COVID 19 pandemic and exacerbated by the US-China trade war), or one of the various ransomware cyber-attacks, there are many seemingly remote factors that can significantly impact your production. This white paper details examples of common supply chain issues and demonstrates how MRP/ERP software can help you mitigate against them.
What are common supply chain issues?
Many UK manufacturers rely on just-in-time (JIT) inventory systems, where goods are delivered as needed, and any disruption to the supply chain can lead to delays and production downtime. A wide range of events can cause problems with getting raw materials into your facility.
Natural disasters such as earthquakes, tsunamis, hurricanes, or floods can disrupt transportation systems, damage infrastructure, and cause delays in the supply chain. The 2011 earthquake and tsunami in Japan disrupted global supply chains by damaging manufacturing facilities and disrupting transportation routes.
Political instability such as civil unrest, war, and sanctions can impact supply chains by restricting the movement of goods and causing delays at borders. Conflicts in Syria and Ukraine have disrupted the supply chain of goods in those regions and far beyond. Growing tensions between China and Taiwan could spell future trouble, as Taiwan is a major global supplier of electronic components such as display panels, memory chips and PCBs.
Cyber-attacks can cause disruptions by causing system outages, data breaches, and other disruptions. The 2017 WannaCry ransomware attack disrupted the supply chain across multiple industries, also causing considerable disruption within the NHS. In the same year, the NotPetya malware attack affected several UK manufacturers, including the shipping giant Maersk, which had to shut down its systems for several days, causing delays in its operations.
Pandemics: Pandemics can disrupt the supply chain by causing labour shortages, closing borders, and disrupting transportation routes. The COVID-19 pandemic has disrupted the global supply chain by causing production shutdowns, transportation delays, and shortages of essential goods. The SARS and MERS pandemics, while much more contained than COVID-19, caused some shortages in products such as PPE and chemicals required for pharmaceuticals, as supplies were contained in the region to deal with the pandemics.
Trade disputes such as tariffs and trade restrictions can disrupt the supply chain by increasing costs and causing delays at borders. The trade dispute between the US and China has disrupted the supply chain of several industries, including technology and agriculture, while the Australia-China trade tensions during 2020 impacted on the UK importing of minerals and metals from Australia.
Environmental concerns or issues may also cause disruption. Manufacturing processes often require significant amounts of natural resources, such as water, minerals or fossil fuels. Government regulations may restrict importing or usage of certain materials, while an increase in environmental activism by groups such as Just Stop Oil or Extinction Rebellion, although more general in their approach, can still impact on supply chains.
Other incidents such as the Suez Canal blockage can cause immediate issues, especially when you consider that more than 12% of global trade passes through the canal annually. The UK is heavily reliant on imports for its manufacturing industry, with more than 50% of its imports coming from outside the EU. The blockage resulted in delayed shipments of raw materials, components, and finished goods, which affected UK manufacturers' production schedules and supply chains.
Brexit could also fall under the heading of ‘other incidents’, but its impact has been no less severe. The UK's decision to leave the EU has resulted in increased customs checks, paperwork, and delays at ports. When you combine this with one or more of any of the above, you can see the fragility of a global supply chain, so it’s important to understand how you can be affected in order to plan to mitigate against it.
How are different industries affected by supply chain issues?
Some industries are more sensitive to delays in supply chain than others. Food and chemicals, for example, often have a short shelf life, or need to be shipped in a refrigerated environment. Delays during transportation not only shorten the overall product’s shelf life, increasing the possibility of the items being scrapped before being used, or increase the transportation costs because of the additional power used to keep them cool.
The automotive industry moved to Just In Time manufacturing in the 1980s and 1990s, and this approach has been adopted by other manufacturing industries. However, this method leaves them significantly exposed to supply chain issues. The semiconductor shortage started in 2020, largely due to COVID-19 shutdowns, and this was at a time when demand for digital devices skyrocketed as more people worked from home. Also, the move by many governments to move towards electric vehicles and the push towards 5G mobile technologies led to a significant increase in the demand for semiconductors.
Just in time manufacturing methods can leave businesses significantly exposed when there are supply chain issues.
How can ERP systems help mitigate against supply chain issues?
First and foremost, the obvious beneficiary will be your stock control. By having historical trends and forward order information at hand, an ERP system can help you purchase and stock more strategically. For example, having minimum stock levels and lead time data stored against each item can automatically trigger purchasing recommendations. Furthermore, the historical data allows you to identify trends in fast-moving or long lead time items, allowing you to perhaps place a larger order with call offs. This delivers a secondary benefit that not only will you get a cheaper price for buying in larger quantities, but you’ll only be invoiced for the smaller call-offs at the time you make them, improving your cashflow.
Traceability and flexibility in supply chain
Traceability of your supply chain, especially in industries such as food, chemical, aerospace, and automotive, is extremely important. A good ERP system will allow you to drill down by batch to find where specific components came from, or inversely find which finished products contain items from a given batch.
Having better control over your supply chain can also provide additional flexibility when it comes to product design changes. Being able to swap out certain components for others that are similar gives you the flexibility to respond to increased demand without being tied to specific components that may have limited availability.
Improved lead times and on-time delivery
Another by-product of a well-managed supply chain is that your lead times may either see an improvement or, at the very least, will be much more accurate. This means that your on-time delivery KPI will also improve and ultimately demonstrates to your customers that you may be a more reliable supplier than your competitors.
Getting a little more in-depth, there are several smaller but no less useful features that a good ERP should provide you with. For example, being able to create and store alternative suppliers against a part, so that every part can have a primary and alternative source, ensures that you can still meet your lead times if you are let down by one vendor. This approach can also be applied to parts within an engineering structure, where similar components can easily be switched out – common in industries such as electronics.
There are other practices you can weave into your current processes that can add further value. Recording your supplier’s part numbers alongside your own and including it on your own purchase orders can not only reduce errors if they are manually processed by your vendor but may also allow them to automate processing of orders, as they will have their own product codes to map to. Linking relevant documents to your ERP can also help; a product brochure against a component, or manufacturing instructions being sent out automatically with items having subcontract work done simply ensure that the right people have the right information at the right time.
Overcoming supply chain problems with purchased methods
It may be that you simply cannot solve a particular supply chain problem, preventing you from making a part. In that scenario, being able to set a purchased method against a part that would ordinarily be manufactured allows you the luxury of being able to ask the system ‘should I make or buy this part’ to fulfil the demand.
Visibility and performance analysis
Overall, it’s visibility that is going to help you master your supply chain. Being able to immediately see when your purchase orders are due allows you to quickly chase anything that is late. Good data provides additional benefits, such as the ability to analyse your supplier’s performance. Being able to immediately quote them stats such as their OTIF (On Time in Full) performance metric keeps them on their toes!
In addition to helping to solve supply chain, ERP software can deliver many other benefits to your business.
Examples of how ERP has helped manufacturers navigate supply chain issues
ERP can deliver significant and demonstrable savings. Here are some examples of 123insight users that have benefited from using ERP to effectively manage their supply chain:
- A cosmetics manufacturer orders product that is shipped via sea. Better visibility of ordering meant that they could consolidate deliveries and order more of faster-moving items, which in turn meant that they were able to order enough to fill a container, rather than shipping partially empty ones.
- A manufacturer of products serving the restaurant industry had reason to pursue a patent infringement, a couple of years before implementing 123insight. It took many hours of searching through paper archives to locate an old purchase invoice, for a task that would have taken minutes in 123insight.
- A textiles manufacturer that imports raw materials from overseas took advantage of expanded functionality in 123insight that allowed them to easily factor in ‘landed costs’, ensuring that they had a much better understanding of what the actual costs were.
- A manufacturer supplying the rail industry was able to use alternative components within a given product, but prior to 123insight they were unable to see what impact a design change might have on the supply chain. Now, they are immediately able to change a component within a bill of material and understand how this will affect lead times.
A small metals engineering company worked with a much larger company that also used 123insight. They received orders from the customer electronically and were able to automatically match records to ensure that orders and work in progress matched seamlessly.
While a global economy delivers the benefits and lifestyles that we all enjoy today, it is not without its issues and risks. ERP cannot magically make stock appear out of nowhere, but it can give you much greater visibility over what you may need and control over what you have. With the added historical data and forward-planning functionality, it can also help you wield greater buying power by placing larger orders for call-off, which in turn aids your profit margins. All-in-all, a well-implemented ERP system will bring control to your business, automating processes such as purchasing and stock control, and giving you the capability to make informed decisions in advance.
If your business is suffering from supply chain issues but you're not sure how to resolve them, attend one of our free online educational events. The 50-minute INFO Exchange gives you a brief overview of what MRP software can do for your business, while the more in-depth 3-hour Evaluation Workshop includes three software walkthroughs and a Q&A session at the end. Both are free, no pressure, and you'll also receive a free book on how to implement a manufacturing system just for attending.