28 November 2011

Manufacturing industry needs to get its 'supply chain house' in order

Still recovering from the impact of Japan's Tsunami disaster earlier this year, the manufacturing industry has been dealt another blow as Thailand recently suffered its worst floods for more than 50 years.

Driven by government incentives, opportunities to lower costs, and potentially reap tax rewards, manufacturing companies have been lured to off-shore locations such as Thailand and the provinces bordering Bangkok. The result of which is that Thailand now has the third largest Manufacturing base in Asia after China and Malaysia. The area around Bangkok has become the Silicon Valley of the Far East with many automotive and high-tech companies now conducting key manufacturing processes there. Sadly, seven of the industrial estates bordering Bangkok are now under water, thousands of people are out of work and global supply chains for some of the world's biggest manufacturers are under threat yet again.

Whether we like it or not, disruption to the supply chain is becoming a common occurrence. With the changing climate and natural disasters affecting the globe more regularly, businesses, particularly those with extended off-shore or outsourced supply chains need to review their supply chain and risk management approach. Original Equipment Manufacturers (OEMs) are constantly looking for their supply chain to offer solutions to reduce lead times and lower costs. Senior procurement staff who have historically been focused on costs are now being challenged with increasing the number of suppliers from single sourcing to offset the risk rather than focusing on reducing the number of suppliers they work with to consolidate spend with a handful of key ones. This process in itself has inherent issues related to pricing, uality, on time delivery and supplier relationship management which supply chain managers need to be aware of.

Developing a strategic supply chain that offers flexibility in its site of production, without any of the risk to quality is the only sure way for manufacturers to remain operational during times of disaster or crisis. This may not be the low cost option they're hoping for, but in the long term the robustness of such of model will certainly deliver financial benefits to those prepared to take supply chain risk management more seriously.

Steven Healings, group supply chain director, eXception

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