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How Tariff Wars & a Pandemic Teach Manufacturers a Valuable Supply Chain Lesson

Paul Lachance
  • Mar 12, 2021
  • 5 minutes

2019 seems like ancient history at this point (I find it hard to remember much before the pandemic), but do you remember the US-China trade wars?   

MFG PMI

As hard as the pandemic has been on our country, US manufacturing suffered a longer (although not as deep) recession in the second half of 2019 due to interruptions in business with our largest trade partner/supplier: China. That phase sent US manufacturers scrambling to locate new suppliers of both raw materials and critical spare parts to keep our operations running smoothly. That US/China trade war was just settling down with US manufacturers making adjustments and then wham – we get sucker punched by COVID-19 and a global supply-chain crisis.

Fortunately, overall, that US manufacturing recession (as measured by the PMI index) was shorter than the previous US-China tariff-related one. Still, we continued to see not only a continuation of supply-chain problems with China, but now with the whole world. Transportation complications/restrictions, factory shut-downs, border closings, social-distancing/sanitization impacts, absenteeism and other factors made it difficult to get just about anything into our factories if reliant offshore, and even onshore in many cases.

What we learned in 2019 was just a taste for what the pandemic was to bring in terms of vulnerabilities to the supply chain.

According to Fortune magazine, early in the pandemic 94% of Fortune 1000 US companies described “major disruptions” to their supply chain¹ –clearly a widespread issue.

According to ISM, materials/spares lead times doubled early in the pandemic. We may not have foreseen a globally impacting pandemic, but the lessons we have learned will help us plan for future issues and vulnerabilities to our supply chain – small or large.

Here are some lessons we have learned and why it is important we avoid them in the future.

Just-in-time fails

Just-in-time inventory (JIT) management is the process to have your parts arrive just before you need them, reducing overall stock-quantities and controlling costs. Using this inventory replenishment process, if done correctly, had proven in previous years to be a great profit-promoting mechanism.

It is essential in a JIT process that you can get those parts, well “just in time.” Although still possible in 2019, the costs for those parts were driven up, in many cases to the point where non-China suppliers made better choices. No easy feat to switch quickly. JIT became nearly impossible during the pandemic – manufacturers could simply not get the parts “in time.”

Stock-outs are a profit killer

Having the right spare part at the right time and hopefully at the right price is essential to a smooth-running maintenance operations. We have all been in this uncomfortable situation: You have a relatively small maintenance issue with an essential asset that gets completely exasperated because you don’t have the spare part you need to fix it. This makes minor downtime turn into major profit-killing downtime.

These “stock-outs” should be avoided whenever possible – a solid management of those spare parts is essential, and a CMMS (computerized maintenance management system) is key to this process.

Here are some of our tips for inventory management.

Reducing supply-chain vulnerabilities

As parts and procurement members of your operations team lost sleep trying to locate those critical spares, especially in the earlier days of the pandemic, manufacturers burned through spare parts quicker than they could replenish them, exasperating the specter of stock-outs.

The supply solutions are fairly common sense:

  • Diversifying – other producers/sources
  • More internal or local sourcing (nearshore/reshoring)
  • Better control/relationship with your overall supply chain – mainly don’t take for granted

How software can help

Just-in-time methodologies can be adjusted to take into account supply chain issues and delays. In the past, when the supply chain was fully operational, your actual on-hand quantities would likely be at relatively low levels. This saves valuable space and simplifies ordering and helps control costs. JIT is still possible, but you must have a great buffer.

You need to have excellent visibility into your parts and procurement process. This starts with solid parts management.

optimize parts

You need to know:

  • A complete catalog of parts
  • Where parts are stored
  • Where you order parts from 
  • Visibility into what is on order, on back-order and other quantity information

You also need to know what parts you are low on with ordering-buffers that can accommodate the difficulties in finding parts.

dashboard low parts

You can still employ JIT methodologies, but will likely buffer much more, especially for those parts supporting your critical production environment. It is essential that you know the status of your parts – especially those you are low on. Automatic reminders via email, on your mobile device and dashboard is essential. When cutting it too close, update your min/max quantities to ensure you will not get caught in a stock-out.

Lean and efficient maintenance operations are key, especially important with these heightened supply-chain vulnerabilities. Some examples would include employing a cloud-based mobile CMMS that is further enhanced through the use of barcode scanning.

AE mobile work orders

mobile barcode

A maintenance technician can scan an asset, quickly locate the bill of material parts list and verify if the parts are on hand, and where they are located.

Managing your parts for preventive maintenance is equally important. Avoiding downtime in the first place is a key to operational success. Performing routine preventive maintenance, aided by the spare parts for the job, reduces the likelihood of a stock-out. 

PM parts

This example shows how you can associate parts with a PM and specify how you manage those parts – on order, in stock, back-ordered, etc. This creates more insurance against supply chain vulnerabilities and is much more predictable.

Protecting your supply chain is possible

You simply cannot take your supply chain for granted, a habit we found ourselves in up until middle of 2019 and completely exasperated during 2020. 

The handful of organizations that reduced their supply chain vulnerabilities during the US-China tariff wars likely faired much better during the pandemic. Finding multiple sources – hopefully onshore or nearshore is essential. And so is making sure your CMMS helps manage your extended just-in-time process.

See how a manufacturing-specific CMMS can help you simplify inventory, maintenance and more.

https://fortune.com/2020/02/21/fortune-1000-coronavirus-china-supply-chain-impact/

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