More and more companies are returning after lockdown and trying to get back to the new standard of ‘normal’. For most, this means trying to grow the client base again – increasing the sales to high enough levels to cover the operating expense. The situation is different for everyone; some organisations now have fewer people and some organisations are bringing all their people back for a portion or all of their hours. The healthier the order book, the more companies can afford to have their staff return to work.

So, your staff are back, you have made changes internally and have implemented the necessary social distancing measures (e.g. 2 metre spacing, staggering shifts, etc.) to ensure the safety of your people. You even have orders waiting and your production is ready to go. We are seeing more and more organisations finding themselves in an unusual position; they’re ramped up but they are stumbling across a problem they weren’t expecting. Their suppliers are letting them down. This is because suppliers have been having the same shut down, capacity and ramp up challenges that your organisation has been facing. Their customers, maybe yourself included, are struggling to get access to the raw materials they need. So, what can you do? Suddenly, unexpectedly, the biggest problem your business is facing lies outside your sphere of control. It’s the same for your competitors,  suppliers are letting them down too. The supply chain has been hit and nobody can get access to all the raw materials or components they need to complete their orders. 

This is not the first time we have seen this situation, and unfortunately is not likely to be the last. To protect your supply chain in the future look to ‘Coronavirus: Protect Your Supply Chain From Large Scale Disruption’. The Financial Crisis of 2008 saw a very similar situation arise, though the effects were mostly felt in retail, there was a knock-on effect for businesses of all industries. For example, following the financial crash, consumers were holding onto their money, so were not interested in buying luxury items such as computers, televisions, etc. So, retailers would push to sell their current stock of televisions and would not order any more. Orders to the television manufacturers therefore dried up and many were forced to downsize – reduce their inventories, let people go, run fewer shifts, etc. As a result, fewer televisions were manufactured and stocked. The effect of this trickled down the chain; the television manufacturers’ suppliers were forced to downsize as well as the need for the copper components, PCBs, fans, plastic frames and so on decreased.  

As the UK began to emerge from the recession and the demand for televisions increased, the supply chain was unable to ramp up quick enough. Customers came back and so retailers needed televisions quickly and placed huge orders to manufacturers who then had to make large volumes of televisions but with fewer people and less capacity. They placed correspondingly large orders to their suppliers who were in the same incapable position. It took too long to get all the inventory to the right locations. So, the situation businesses are finding themselves in today is a phenomenon we have seen before. Though it might appear slightly different, the supply chain is in a position where it needs to ramp back up, and that takes time. 

In 2020, we are seeing this situation a lot in surprising industries. In relatively simple processes such as glass manufacture and extruded plastics, and then in more complicated processes like Printed Circuit Board (PCB) manufacture and forgings. Coronavirus has not discriminated when it comes to its effect on supply chain.  

So, how can you accelerate the delivery of raw materials? Is it even up to you? The answer is yes. If you are downstream of an upstream supplier, you are heavily reliant on their operations. However, you are also responsible for the demand that flows up the stream to the supplier. When your order book increases, your supplier’s order book will also have a corresponding increase. Often businesses don’t consider this because the supplier isn’t technically a part of your organisation, they won’t directly affect your P&L (profit and loss) – you don’t really feel like you have a responsibility to your supplier. But if you consider your business on a larger scale, you absolutely do! If your business were to go away, then your supplier could go out of business. Of course, if you’re only a small consumer for a very large supplier then this will not be true. However, if you make up even 10-15% of your supplier’s order book, you play a significant part in what they do. Losing you and your business would be a real issue for them.  

In the same vein, it’s in your best interest to help your suppliers. So, what can you do? If you have a supply issue, that means they have a delivery problem. That could be something you could help them with. They might also have a raw material problem, but more likely is that they have a capacity problem and are struggling to ramp up quickly enough to deliver your new demand as you come back from a slump period. If you think about it a little more, it is in your best interest to ensure that as you win, your supply chain wins as well. Often, your ability to win a new order is due to your suppliers being able to respond within a short enough lead-time, or, for example, producing you a new prototype/sample quickly. Equally, if your suppliers are able to deliver in a faster lead-time or more frequently, you could reduce the amount of inventory you need to hold which would be a huge benefit in cash and space.  

The best way to get what you want from your supplier is to improve things for them as well. How can you help your supplier do what’s best for you? Incentives are an option – if you are competing with other manufacturers for your supplier’s capacity, then a very small increase in your purchase price would equate to pure margin for your supplier. Their quantities would be the same, their costs would be the same – they would just be getting a little extra money back. Offering a premium to your supplier for preferential and rapid service might give you the cutting edge against your competition. For a slight decrease in the margin, you can win orders you otherwise wouldn’t have been able to take without the raw materials/components available to you. If you do the maths, this can be large revenue in for you and a very small proportion of the margin out to your supplier. From a strategic point of view therefore, you might want to look for opportunities to incentivise your supplier. 

However, that does not help them with their capacity problem. The Theory of Constraints tells us that the best place to focus your improvement initiatives are in your Constraint areas. Your business Constraint is what limits your ability to deliver. In your case, your Constraint is in your supply chain, it’s not in your business at all. So, consider focusing your very capable improvement resources, not internally, but out to your supplier to help them improve their capacity and output. This is what we would refer to as a Win-Win solution. Most people wouldn’t consider this a good solution (the supplier getting ‘outside’ experts in) because the supplier believes that they cannot afford the expertise/capacity to improve right now, and the customer (businesses such as yours) believes that it isn’t their problem to solve.  

Consider sending your improvement experts to your supplier and help them to improve; it’s in your interest. Combine this with the incentives mentioned above and you might find that your supplier and the lack of materials becomes far less of a problem very quickly! 

It is a difficult time for companies, especially in the current climate, to pay for external expertise so you can solve this for your supplier by offering some of your skills in an area that would benefit you most. At Goldratt UK we solve this problem for our customers by basing the majority of our fees on results. We help our customers increase their capacity and delivery performance so that their invoiceable sales go up; we look to take a percentage of the increase for our time and services. It’s another win-win deal. If you have any questions or would like to refer your supplier to us, our details are as follows: 

Phone: 01234 843510 

Email: [email protected] 

_{By Phil Snelgrove, Lauren Wiles}