David Luther | Digital Content Strategist
No customer wants to be told that the item they’re looking for is out of stock. But if a business doesn’t effectively manage its supply chain, it may have to deliver that news to an unhappy customer. This is especially true for manufacturing supply chains, which involve all the processes that take raw materials and turn them into sellable products.
As manufacturing becomes increasingly global — and, with that, increasingly vulnerable — it is more important than ever for manufacturers to fully understand their supply chains and find ways to overcome the potential challenges they present. Manufacturing supply chains can be disrupted by natural disasters, shifts in global politics, shipping slowdowns and more. By improving their supply chains, manufacturers can at once become more efficient and prepare for what the future may hold — two critical ways to gain a competitive edge.
What Is the Manufacturing Supply Chain?
The manufacturing supply chain comprises all the processes a business uses to turn raw materials into final products that are ready to be sold to customers. These processes include raw materials procurement, production, quality control, distribution and post-sales service. A business with a disjointed or inefficient supply chain is less likely to be able to keep up with changes in customer demand, leaving customers with long backorders or delayed shipments. In today’s highly competitive “quick shipping guaranteed” market, effective supply chain management is important at every stage to ensure that products are manufactured efficiently and waste is minimized. To achieve this, many businesses have changed how they approach manufacturing by switching from traditionally siloed operations to an integrated and holistic view of the supply chain. This is often accomplished by using modern technology and automation to gain visibility into every step.
Key Takeaways
- The manufacturing supply chain is made up of the processes by which a business creates a sellable product from raw materials.
- A manufacturer must understand every element of its supply chain to mitigate risks and improve operations, from fostering positive relationships with suppliers to post-sale services and everything in between.
- Businesses should have plans in place to overcome supply challenges and prepare for future changes to their manufacturing supply chains. Failure to plan effectively could leave businesses behind as their competition adapts to tomorrow’s market.
Manufacturing Supply Chain Explained
The manufacturing supply chain involves more than just physically creating goods for customers, though that is certainly a major component. The elements of the manufacturing supply chain can be separated into three main categories — procurement, production and product distribution.
- Procurement: The supply chain begins with the manufacturer obtaining raw materials and supplies from vendors. Businesses need to find the balance between high-quality materials and price to ensure that they can satisfy customer demands and generate profit.
- Production: When people think of manufacturing operations, production is likely the step they’re thinking of — turning raw materials into sellable goods. This step often accounts for a large share of the supply chain, so businesses must seize opportunities that bring improvement, such as changing their assembly process or investing in more efficient equipment.
- Product distribution: Once goods are completed, they need to be shipped to where they’re needed. This could be a warehouse, a retail location, a distributor or directly to customers. Because distribution is often the last step before customers receive their orders, distribution slowdowns can directly impact customer satisfaction and determine the difference between a repeat customer and an unsatisfied one.
The Impact of Manufacturing Supply Chains on Businesses
The manufacturing supply chain impacts businesses in four key ways — cost efficiency, production and delivery speed, quality control and risk management. All four factors contribute to customer satisfaction and are crucial for businesses hoping to gain a competitive advantage in their industry.
- Cost efficiency: The direct cost of producing goods typically makes up a large percentage of a business’s costs. By streamlining supply chain operations and optimizing processes, businesses can reduce their costs, allowing them to maintain or increase profit margins while offering competitive prices to customers.
- Production and delivery speed: A speedy manufacturing process gives customers shorter order fulfillment times, which can increase customer loyalty. Additionally, a flexible manufacturing supply chain gives businesses the ability to quickly pivot operations to keep up with changing demand — and gain an advantage over slower competitors.
- Quality control: From raw materials to the steps directly involved with manufacturing, the quality of a business’s production process and the resulting goods is inseparable from the supply chain. Higher-quality materials, better assembly procedures and higher-quality control checks help businesses create products that meet demand and keep customers coming back.
- Risk management: A vulnerable supply chain can leave a business without materials if disruptions arise, such as those caused by natural disasters or international trade breakdowns, for example. By creating supply chain contingencies and backup plans, such as contracting with multiple suppliers, businesses can mitigate risks to keep their manufacturing supply chain running smoothly, even during industrywide slowdowns.
The manufacturing supply chain impacts businesses in four major ways — cost efficiency, production and delivery speed, quality control and risk management. Handled well, these factors all contribute to greater customer satisfaction.
Elements of the Manufacturing Supply Chain
Before decision-makers can improve their supply chains, they must first understand every process involved and how those processes are interconnected. For anything but the simplest operations, this level of understanding requires visibility and comprehensive data from every element of the supply chain, often achieved through modern technology, such as dashboards and automation.
Suppliers and Vendors
Manufacturing begins with the vendors that supply businesses with the necessary resources to create their products. Businesses need to trust and rely on their suppliers, but an overreliance on one vendor can create problems if that vendor runs out of supplies, experiences a supply breakdown or shuts down operations. Companies that contract with multiple suppliers are less likely to experience major delays in procurement because they can adapt to issues with one supplier by quickly increasing orders from another. Researching and comparing multiple vendors can help businesses identify areas for improvement and ensure that they’re getting the best deal on supplies.
Raw Materials
Manufacturing high-quality goods requires high-quality raw materials — but potentially at a high cost. Raw materials form the fundamental building blocks of a business’s products, and lower-quality inputs may end up costing more in quality control, waste and returns. To find the ideal balance between low costs and high quality, businesses should regularly conduct market research, such as looking at their suppliers’ competition or soliciting customer feedback. Weaknesses in this stage of the supply chain can leave customers with inferior goods and businesses with flawed and unsellable products.
Production
Careful production management is critical for any business seeking to optimize its manufacturing supply chain, as production processes are often the primary driver of final quality in products and the time it takes to create them. Additionally, producing goods often accounts for a large portion of a business’s costs and energy consumption, making it a good place to look for ways to improve the process, such as investing in material requirements planning (MRP) software or implementing automation to optimize downtime and extend machinery life. Without an efficient production workflow, businesses may create unnecessary waste and struggle to meet customer expectations —for both speed and quality.
Storage and Warehousing
After goods are manufactured, they must be stored until they can be shipped to customers, distributors or retail locations. Some businesses may create products as they are ordered and only need to store them for short periods — a process known as just-in-time (JIT) inventory. Other businesses may prefer to keep finished goods inventory on hand to meet future demand and ensure orders are delivered in a timely manner. However a business chooses to maintain its flow of goods, it needs to plan ahead to optimize carrying costs, shipping expenses and storage space. Poor inventory management can lead to stockouts that push customers to competitors or to overstocks that raise carrying costs and potentially waste perishable goods. Many modern businesses use automation and advanced data collection to increase their forecasting accuracy and allocate inventory accordingly.
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Distribution and Transportation
Distribution involves the physical movement of goods from one location to another, either within an organization or to a customer. Many manufacturing companies find it more cost effective to outsource their distribution needs to a third-party logistics (3PL) provider with shipping expertise. But for those with in-house distribution, modern technology has made overseeing logistics within the supply chain more accessible through advanced features, such as real-time data for shipment tracking and inventory levels, typically viewed through an easy-to-read dashboard that’s part of an enterprise resource planning (ERP) system. Transparent distribution can also give customers up-to-date inventory data that sets a realistic delivery timetable before they place their order. And, after a purchase is made, technology like automated picking and shipment preparation can ensure that that timetable is met.
Retailers
Retailers are a critical part of the supply chain because they are an intermediary that buys goods in bulk from manufacturers and resells them directly to customers. Creating an open dialogue between manufacturers and retailers can give both parties valuable data on demand, optimal retail inventory levels and customer satisfaction. This data can be used to identify demand changes and trends early enough to create a flexible supply chain capable of quickly adapting to new customer preferences. Among the key roles played by retailers in a manufacturing supply chain are demand forecasting, inventory management, marketing and promotion, and order fulfillment.
Maintenance and Repair
Not every manufacturer offers maintenance contracts or extended warranties on its products, but for those that do, effectively planning and managing them is crucial. These services can give customers peace of mind when they purchase goods; but returns, replacements and repairs can be costly for a company if quality control is low or warranties extend past a product’s expected lifetime. Manufacturers should regularly collect and monitor data on repairs — such as type, frequency and cost — to inform future services and to balance good customer service with overall cost. With well-managed repairs and maintenance services, companies can turn one-time purchasers into loyal customers.
Maintenance and repair also come into play in the supply chain by ensuring that manufacturing equipment and machinery are kept in good working order, thereby minimizing downtime and reducing the risk of product defects and quality issues. Key processes here include preventive, corrective and predictive maintenance, as well as spare-parts management.
Recycling
Recycling is an increasingly valuable step in the manufacturing supply chain, both for customers who prefer sustainable companies and for businesses looking to reduce waste, conserve natural resources and lower costs. Additionally, for businesses that sell recyclable goods and/or use recyclable materials in their production process, collaboration among manufacturers, consumers and recycling facilities is necessary to efficiently recycle materials, as consumers need to know how to deliver used goods and businesses need a way to collect and transport them to the appropriate facilities. When done effectively, recycling can give new purpose to flawed or returned products and excess materials, while reducing a business’s dependency on virgin materials from external vendors and natural resources. These efforts all help to reduce the carbon footprint of manufacturing and promote a more sustainable future.
Challenges Faced by Manufacturing Supply Chains
In recent years, supply chains have rapidly evolved and “have become more complex, interconnected, and global than they were in decades past … and can easily break,” according to the 2022 Economic Report of the President by the Council of Economic Advisers. The report elaborates that “the production and distribution of goods have been regularly snarled by natural disasters, cyberattacks, labor strikes, supplier bankruptcies, industrial accidents, and climate-induced weather emergencies.” Manufacturers must have plans in place to address these and other threats to their operations, or they will risk falling behind their competition. Here are some of the most common challenges to the manufacturing supply chain.
Disruptions in the Supply Chain
Supply chain disruptions can be caused by a wide range of factors, including natural disasters, pandemics, transportation issues, changes in global politics and economic shifts. No matter the cause, disruptions hinder manufacturers from creating and delivering goods and cost businesses $182 million annually, on average, according to the 2022 Interos Resilience survey of 1,500 global decision-makers across multiple industries. Manufacturers can minimize the impact of supply chain disruptions by diversifying their suppliers and working with multiple vendors located in geographically varied areas. This strategy works best when coupled with real-time data collection, often through ERP system dashboards, and open communication to ensure that potential disruptions are caught early and contingency plans are quickly enacted.
Subcontracting in the Defense Industry
Subcontracting in any industry can add complexity and impair the visibility needed to effectively manage the supply chain. Subcontractors may have different processes, capabilities and schedules, which can affect product quality and delay orders. Subcontractors may also have different cybersecurity standards that can potentially add extra risk to production and make disruptions more likely. A manufacturer’s primary contractors need to take special care to manage subcontracted components of the supply chain, especially for those working in regulated areas, such as the defense industry. To address these challenges, the U.S. Department of Defense recommends that lower-tier contractors be incentivized to “embrace digital engineering and manufacturing tools and technologies as a performance element.” By implementing modern technology, such as centralized databases for sharing information, primary contractors and their subcontractors can collaborate on streamlining manufacturing processes and ensuring that contracts are reliably fulfilled with high-quality results.
Automation and Relationships in Supply Chain Management
Automation is a successful way to improve supply chains and minimize the labor required to create and deliver goods. But not all automation is created equal, and if its implementation is not well planned, it can create headaches — especially when it comes to dealing with external companies, such as suppliers and distributors. Each company a manufacturer works with may have its own system with its own balance of automation and manual processes, and that disparity can make finding a one-size-fits-all approach challenging. For example, one vendor may have a system that automatically reorders and ships supplies monthly, while another may require that a new order be placed every time a manufacturer needs new supplies. Businesses struggling to adapt to different contractors’ rules can reassess which companies best integrate with their own practices, or they can invest in a more robust supplier relationship management system to help ensure that they can effectively automate processes without causing complications with suppliers.
Lack of Visibility Across the Supply Chain
Manufacturers need end-to-end visibility to locate and track the movement of components and final goods throughout the supply chain. Without it, bottlenecks and delays can manifest. Real-time visibility is often achieved through technology, such as automated sensors and Internet of Things (IoT) devices that collect and organize crucial data to help businesses identify problems quickly and prevent bottlenecks. True visibility also requires collaboration — both among internal teams and with external partners — as any disconnect between links in the supply chain can create delays. By examining the “in-between” steps of a supply chain, such as finished goods moving from a factory to a warehouse, businesses can find places to improve visibility — not to mention efficiency and resilience for the supply chain, too.
Increasing Complexity of Global Supply Chains
Supply chains rely on increasingly complex global systems to move goods from one location to another and are therefore subject to shifts in geopolitics and international trade. Businesses can reduce the likelihood of a major shutdown by investing in regionally diverse facilities and building contingency plans for location-specific risks — for example, ramping up production in inland facilities and reducing reliance on coastal operations during hurricane season. To mitigate the risks of global complications, many companies have begun bringing foreign operations closer to home. According to the 2022 Interos report, “51% of suppliers are expected to be reshored or nearshored on average in the next three years.” While relocating operations may increase labor costs, it can also give businesses more control and visibility over operations, reduce shipping costs and facilitate faster order-fulfillment rates.
Rising Costs of Raw Materials and Components
Many of the raw materials needed for manufacturing have become more expensive over time, caused by a combination of inflation, scarcity and other market forces. Many businesses have responded by simply raising prices for customers — but other highly competitive businesses, looking to keep prices low, have had to adapt in other ways. Optimizations throughout the supply chain, such as more efficient machinery, less wasteful assembly processes and alternative sourcing strategies, can reduce costs and help businesses maintain margins. Additionally, businesses can better prepare for fluctuating costs by generating more accurate demand forecasts — often through automated financial-metric tracking and open communication with partners — so they can minimize excess stock and order only enough materials to meet demand.
Inadequate Risk-Management Strategies
Effective supply chain management is essential for businesses that want to minimize the impact of potential disruptions and shorten recovery periods. While it may be impossible to prepare for every eventuality, businesses that plan for possible supply chain breakdowns are typically better equipped to manage risks. Many manufacturers leverage technology platforms to analyze and organize the massive amounts of information they need to effectively identify and mitigate global supply chain risks. According to the recent Interos report, 1,495 out of 1,500 respondents “felt there were clear benefits to be gained by investing in software solutions for supply chain risk management.” Regularly assessing the supply chain is crucial for identifying potential threats and creating contingencies. For instance, a business may need to improve its cybersecurity protocols to prevent attacks or train its staff on disaster recovery before a storm hits. By analyzing data, such as cyberattack trends and seasonal weather patterns, businesses can prioritize these strategies effectively and minimize the impact of disruptions.
Shortage of Skilled Workers
The availability of skilled workers is a pressing concern for manufacturers, as understaffed operations can result in production and shipping delays and poor product quality. In Deloitte’s 2022 Manufacturing Supply Chain Study, which surveyed over 200 U.S.-based manufacturing executives, 53% of respondents cited “talent shortage” as having a significant impact on their supply chains. It is vital for companies to establish a system that continuously develops and retains a highly skilled workforce that can effectively adapt to future changes in the supply chain and the challenges they bring. Additionally, automating redundant processes can help ensure that the labor they do retain can be deployed to processes that machines can’t automate.
Many manufacturers are also addressing this concern by implementing a two-pronged strategy: creating incentive programs to retain older, skilled workers and investing in training programs to help less-skilled employees advance to better positions. In addition, some companies are partnering with local and national education institutions to attract new skilled labor through internships and apprenticeship programs.
Manufacturing Supply Chain Technology
Technology can be deployed at all levels of the supply chain to improve operations and streamline processes, including the three primary elements of the supply chain — procurement, production and product distribution.
- Procurement: Manufacturers can use technology to monitor real-time stock levels for supplies and streamline the ordering process when stock levels fall below a certain quantity, often through automation. Technology, such as ERP systems, can also collect and analyze data on supplier performance, pricing trends and other useful metrics that inform the procurement process.
- Production: Manufacturers can incorporate automated robots into production workflows to raise productivity, reduce injuries and create a more continuous operation. Technologies, such as 3D printing, are often used to improve quality control and reduce waste, especially for short-batch or custom products that otherwise may have required special or retooled equipment.
- Product distribution: Warehouse management systems can use tools, including barcode scanners, picking robots and mobile scanners, to improve accuracy and fulfillment times throughout a warehouse workflow. After orders are picked and processed, transportation management systems can optimize shipping routes and reduce costs. Once goods are shipped, order tracking and automated status updates can give customers and businesses faster and more accurate delivery updates.
Get Better Visibility Into Your Manufacturing Supply Chain With NetSuite
Effectively managing a manufacturing supply chain in today’s global market requires visibility. With NetSuite for Manufacturing, businesses can gain the visibility and tools they need to optimize supply chain operations and drive growth. NetSuite for Manufacturing offers a range of features that streamline the procurement, production and distribution processes, while improving collaboration and communication with suppliers and customers. With real-time data analytics and reporting, business leaders can make better informed decisions, identify bottlenecks and find opportunities for improvement.
NetSuite ERP is a comprehensive, cloud-based system that gives manufacturers better control over their inventory to reduce the risk of stockouts or overstocks by providing decision-makers with the data they need to quickly respond to changing customer demands. Businesses can improve manufacturing operations with NetSuite’s system and experience greater efficiency, higher visibility and enhanced customer satisfaction.
Supply chains have become more complex as globalization continues, presenting new challenges for manufacturers. By understanding the links in the supply chain, businesses can achieve the visibility they need to streamline operations, reduce costs and improve customer satisfaction, typically by modernizing systems and implementing new technology. An optimized supply chain is better suited to mitigating risks and creating contingencies to deal with potential threats and disruptions. By adopting the right strategy, manufacturers can leverage their supply chain as a key competitive advantage and create a more reliable operation that is ready to face tomorrow’s challenges.