Insulating Your Company Against Unpredictable Supply Challenges

The recent global pandemic took the manufacturing world by surprise. It left a wave of frustrating and unwelcome challenges in its path. The most frequently discussed were labor shortages, material scarcities and logistics issues. When compounded, these problems created an environment where it became difficult to manufacture product, get it out the door, and into the customer’s hands. This leads to an unfortunate situation, since the last thing any business wants to tell its customers is that it can’t fulfill their needs. There is good news. Some of these supply challenges can be avoided.

The secret? Inventory programs. While they come in a few different flavors, they all work the same way. The manufacturer will produce and hold inventory then release it in scheduled batches to the customer over a contracted period of time.

During the pandemic, we found that our customers with blanket programs were best insulated against supply challenges. Since they ordered ahead, their components were always on the shelf, ready to ship. This helped keep them in a competitive position, as in many cases it allowed them to fulfill their own orders.

On time delivery is hardwired into our DNA. We do a lot of forecasting, planning and preparation to maintain our inventory at sustainable levels, but we can’t always get it right. Thankfully, throughout the pandemic, we were able to fulfill most orders while others could not. Though in some instances, we could only deliver with extended lead times. Customers with blanket orders were generally immune to that.

Inventory programs benefits customers in other ways, primarily:

• Lower Product Cost – thanks to economies of scale. For instance, with a 12-month program, the customer is committing to 12 month’s worth of inventory. It will cost less to produce them all in one larger run, rather than 12 short ones.
• Flexible Inventory – if demand were to suddenly shoot up for a buyer’s product, they can always draw down from their future stock that’s ready to ship. We’ll adjust our manufacturing schedule accordingly, to supply future demand as current inventories are being depleted quicker than anticipated.
• Locks in Resources and Capacity – shops don’t have infinite capacity. Time and material allocations must be carefully planned. When a customer has an inventory program, it essentially buys them a percentage capacity, locking in production time and materials.

Interestingly, we had a few customers that cancelled their blanket orders. We were understanding, as the climate was one of fear and uncertainty. However, several of them later found themselves in a tough spot. Since manufacturing and demand remained strong, they were in dire need of product that was no longer being held for them.  This kept some waiting for shipments that they previously would have received immediately.

We’re not claiming that inventory programs are a silver bullet. There are certainly other considerations and approaches to help avoid some of the challenges. One thing we know to be very important is clear, constant communication. The more a manufacturer understands about the needs of its customers and the marketplace, the better position they are in to meet demand.

When buyers have inventory programs in place, it puts more control into their hands. This brings predictability, while eliminating fear and uncertainty. Above all, it puts both suppliers and buyers in much more competitive positions. When a manufacturer can take care of its customers, those customers can then take care of their customers. Everybody wins.