Responding to the Changing Economics of the Supply Chain

At the beginning of 2013, Supply Chain Digest ran a story in which supply chain “gurus” made predictions for the year ahead. Some came true, some didn’t.

One of the predictions came from analysts at IDC Manufacturing Insights. It dealt with manufacturer sourcing, and the overall prediction was for “changes in sourcing practices.” This seems to have happened in several ways.

One of the biggest is seen in the overall changing economics of the supply chain. Sub-OEM suppliers are now pushing their suppliers for lower prices, smaller quantities per shipment (moving more and more to Just-in-Time practices) and better payment terms—net 60 is now common, but some are asking for net 90. In essence, the financial risk is being pushed down the supply chain and suppliers are being forced to carry more working capital. As stated in this article, there is now a “relentless pursuit of greater operational efficiencies” which seems to be leading this shift.

What does this mean for suppliers? Like it or not, as this becomes the norm, suppliers will have to adjust and adapt accordingly. As OEMs demand cost reductions, suppliers will have to place greater emphasis on efficiency and lean manufacturing principles. This means satisfying customers needs and demands, while eliminating what isn’t essential. It means reductions in inventory, reviewing all operations, and reducing waste wherever possible.

Of course this is not easy, and as the risk continues to get pushed down the chain, it becomes more challenging for suppliers. However, by adopting leaner practices, unexpected benefits can often be seen, and a true commitment to what the customer wants is demonstrated.