Disruptive Supply Chain — Re-Thinking Your Strategy

01 May, 2012

In This Article

Challenge the status quo through disruption.

By Mitch Free

According to one of the latest surveys of product manufacturers from MFG.com, a global online marketplace for suppliers and buyers, 60 percent reported supply chain disruptions continue to decrease.  There appears to be a number of reasons behind this, such as companies moving away from pure lean principles and developing multiple suppliers for their critical components.

We all went through the exercise a few years ago of reducing our supply base to make it as lean as possible. Yet that left us overly exposed to the effects of natural disasters, accidents and the things we just can’t foresee. But did it also hinder our ability to compete in a world that is wired very differently today than it was just a few years ago?

Of course, we need to focus on mitigating supply chain disruption risk, but the best and brightest companies tend to be putting their energy into developing dynamic and disruptive supply chain strategies that will allow them to compete in entirely new ways. These companies are embracing the tools and technologies available today to create a very dynamic supply chain that is globally diverse and can rapidly scale up and down on demand as needed. They are challenging the tried and true static supply chain in favor of those that their competitors will find disruptive and scramble to emulate.

It may seem obvious, but product manufacturers want to increase their profit margins, market share, enter new markets globally and mitigate risks. The Internet coupled with the maturity of computer-aided design (CAD) and computer numerical control (CNC) of manufacturing equipment are at the center of disruptive supply chain strategies.

If you want to sell your product for a premium and not compete on price, your offering has to be differentiated. We pay more for products that we play a role in configuring or customizing for our specific needs or tastes. Coffee is an analogy we can all relate to. You can buy a cup of coffee at your local convenience store for less than a dollar. Yet when we go to Starbucks and they customize the coffee to our tastes, we pay five dollars for a cup, and we are happy about it. Leading product companies are figuring out how to offer customization and configurations options for their products. They have realized that competing with a “one-size-fits-all” product means you have to compete on price and that leads to razor thin profits.

A perfect example of a company doing this in America is Great Lakes Case & Cabinet Co. Inc. in Edinboro, Pa. The company is in what could arguably be called a commodity market, yet they have figured out how to let their customers configure their cases and cabinets to their exact needs and specifications. Their supply chain reacts quickly and delivers a custom configured cabinet faster than their competitors can deliver a one-size-fits-all cabinet.

Disruptive Supply Chain Strategies

When companies morph from a one-size-fits-all product to one that is more tailored to individual customer needs, it means you can no longer mass produce in a factory on the other side of the world.  Perhaps you can mass produce components or sub-assemblies, but the configurable part will need to be produced quickly and ideally as close to the customer’s needs as possible.

Distributed manufacturing is being used by leading companies to build goodwill in emerging markets, take advantage of local economies and reduce logistics costs.  Online marketplaces, such as MFG.com, are examples of disruptive supply chain strategies. This global marketplace rapidly brings suppliers and buyers together to conduct the sourcing process in one location.

Through this process, companies can rapidly create localized dynamic supply chains. Examples include a leading consumer products company (to produce proprietary equipment), and a manufacturer of equipment and systems for the refining, petrochemical, gas and alternative fuels markets. Both have different use cases, but they are leveraging the same tools to execute their strategies.

The consumer products company designs proprietary machines about the size of a football field to produce baby diapers at an amazing speed and quality. These machines are expensive to build and contain many precision machined and fabricated components. When this company wants to start selling their diapers in a new market, they source the part manufacturing locally. It creates a buzz in the market, reduces logistics cost and provides an ongoing local ecosystem that can react quickly when spare parts or repairs are needed in the future.

The company making equipment for the petrochemical industry wanted to manufacture in a distributed manner close to their customers for several reasons. For starters, the equipment is large, very costly to ship and prone to damage during shipment; thus, producing locally makes sense. And when one of their systems goes down and is not producing oil, it creates a significant loss of revenue for the operator. The local supply base that was created during the original production of the systems becomes invaluable when is comes time to rapidly produce replacement parts, make needed repairs and get the system up and running again in the shortest amount of time.

An analogy would be printing a picture on your printer. Think of the digital photo as a design file and your printer as the production tool. If you sent that design file to your friends they could all print an exact copy locally and on demand. This is the same type of progress that has been made in the manufacturing industry and is making disruptive supply chains possible.

Software as a service (Saas) sourcing and supply chain applications, coupled with online suppliers, make creating and managing these disruptive supply chains very easy. This technology and the ability to identify uniquely qualified suppliers around the globe with just a few mouse clicks have redefined how leading companies think about supply chains. They are moving away from the old school lean supply chains in favor of more dynamic ones. This has always made the most sense, but the tools just were not previously available to make it manageable.

The other technologies that have made this new and more efficient supply chain strategy possible are the technologies related to product design using 3D CAD software and CNC controlled machine tools. The 3D CAD technology allows a product company to convey their designs in high fidelity to the companies that will produce the parts and components for them. Much of the ambiguity of the designer’s intent and clarity as to exactly what needs to be produced is contained in the 3D CAD models. As a result, the required supplier development time and the need for in-person meetings to explain the drawings have been significantly reduced, if not eliminated.

The CNC machine tool technology used by the companies that will produce the parts and components allows for extremely precise and consistently repeatable production of the 3D models contained in the CAD file. These machines turn the geometry in the CAD file into instructions the machine tools can understand to machine and fabricate the parts rapidly.

An analogy would be printing a picture on your printer. Think of the digital photo as a design file and your printer as the production tool. If you sent that design file to your friends they could all print an exact copy locally and on demand. This is the same type of progress that has been made in the manufacturing industry and is making disruptive supply chains possible.

The speed and global connectivity of the Internet to help identify uniquely-qualified suppliers, coupled with the ability for you to precisely communicate your needs, and the suppliers’ ability to produce exactly what you require using CNC technology has taken much of the “art” out of manufacturing. This is an exciting time for sourcing and supply chain professionals who are willing to challenge the status quo and develop disruptive supply chain strategies.

Mitch Free is the founder and CEO of MFG.com, based in Atlanta, with offices throughout the globe. The online marketplace for manufacturing facilitates the sourcing of more than $1 billion per month worth of manufacturing services in the mechanical parts, packaging and textiles industries.

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