Over the last 2-3 years, the perception of the role of logistics has changed. I would even say that only now board members of many companies started to pay attention to their supply chain and production process.
This does not mean that they have immediately developed a concrete strategy in this area. This is well illustrated by a question I recently received from a representative of a furniture company selling in the D2C channel.
Our industry is heavily dependent on economics. Furniture is a durable product. New furniture is not a necessity product. Our sales fluctuate according to the situation in the world.
Many companies like ours have long since gone bankrupt or are producing at cost. It’s getting harder and harder for us to plan production when the number of orders is decreasing. It is a struggle to find work that we can give to people.
This is compounded by problems with raw materials and semi-finished products. Wood we mostly imported from the East. Foams are derived from oil and it’s price increased by 30% over the year. On top of that there are steel prices.
As a company we need to produce in order to provide work for the whole team. However, the problems already start with the materials. So what should we do?
Give people time off? They will go somewhere where there is work. Keep more stock? We will fill up the warehouse and the company will lose profitability. These are the kinds of questions I ask myself every day, wondering if we can organize our supply chain better.
What can I do in this situation? Here are some of my thoughts. But let me warn you right away. I have no magic solutions. Just like Ben Horowitz, I discuss only the hard things about hard things.
By the way I recommend this book. It is not really about logistics and yet everyone who runs a business should read Ben’s memoirs.
We all see that semi-finished products and raw materials are getting more expensive and many of them are more difficult to obtain. However, there are still exceptions to this “scarcity rule”. I talked with the owner of an industrial sewing plant. The plant employs over 200 people in Poland and several dozen in Turkey.
In his business there are (yet) no such challenges. Materials that come from Turkey or India are not a problem. Their delivery time has been extended. But only by 2-3 weeks, which does not break up the production flow.
From conversations with other people managing the supply chain I conclude that now the problem is everything that was imported from Russia, Ukraine, and Belarus or is related to energy sources.
Unfortunately, when it comes to managing the lack of raw materials and their rising prices, you simply have to prepare in advance by diversifying the suppliers.
If someone, because of the price or to simplify the process, works with one supplier of any raw material, then unfortunately, there will be the risk. If someone in calm times built a list of alternative suppliers and start contacting them, then he has a chance to maintain supply.
Anyway, a lot has been written on this subject by Yossi Sheffi in his book The Power of Resilence. I will not repeat after better writers than myself. I will only recommend reading or listening to this book.
It’s full of business stories from which you can draw ideas. You want to know how Walmart organizes a crisis center? You can learn it from this book.
FLEXIBLE PRODUCTION PROCESS
Regarding the small production series, I think it depends on the technology used, period.
The production process has greater inertia or is directly dependent on human labour, the more difficult the task. By inertia I mean changeover times and the transfer of production in progress between lines in order to perform the next stage.
A large number of transfers and long changeover times is a process with high inertia, which only works well with large production series. A process with fewer production transfers, or integrated on one line, and shorter changeover times is a flexible process.
Flexible processes also work well for smaller series. An interesting example of such a process is printing. Which of course is not possible with all types of CPG products or the furniture industry mentioned in the question.
But back to the topic. There are no magic solutions because the production process depends on the technology which the company has decided on and which usually cannot be changed in a short time.
I personally remember an example of a pharmaceutical company, which plans the volume of a certain product group for 5 years horizon (sic). It’s determined by production technology, which they nota bene patented, because they use a component sold under the control of the European Union in 5-year contracts.
SO WHAT TO DO NOW?
But what remains if no one in the company has shown foresight in advance? Didn’t do the suppliers diversification, didn’t design automated processes, or didn’t convince the other board members to invest?
Sometimes you have to be like a wild boar. When you’re up to your eyeballs in mud, you just have to keep roaring forward. Push through everything that has come together in front of you. To accomplish in a short period of time everything that hasn’t been done in years.
I heard this comparison a few years ago at the conference, which motivated me to write one of my first blog articles – How to increase profits with Sales & Operations Planning.
It may not be beautiful. However, it is certainly relevant to the current situation…
I will probably write more about diversification and risk management in the supply chain at another time. Meanwhile, if I gave you some food for thought I also encourage you to sign up for my newsletter.
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