Alibaba and DigiKey is not a supply chain strategy! So what are the ten most important things to consider when developing an outsourced manufacturing solution and the supply chain that surrounds it?
I’ve seen all kinds of supply chains, good, bad, and ugly, more vendors than most, and I’ve visited an unhealthily large number of factories in all the world’s manufacturing geographies. Here’s a little of what I’ve learned along the way.
Put your customer first. Consider where your market is, where most of your customers are likely to be. Then you can think about where and how to ship the product to them. Don’t underestimate the cost of fulfilment along with the cost of upgrade or reverse logistics or even recalls should they be required.
The selling price. What do you need to sell at to get the volume of sales that you need? First to market advantage is good, but it is temporary and you may need to review pricing sooner than you think. You need to really understand what you can sell for, how many you can sell and what margin you need.
The importance of labor. Think about how much of your manufacturing costs is labor. This will impact your selection of geography, as will the types of materials used in your product. The details and sources of the bill of materials will hold sway.
Downstream vendors. Your materials and their sources will influence the choice of vendor. Mechanical parts such as metals or plastics may dictate the best place to build a product. You’ll need to explore a few tiers down to get the right sort of robust low risk supply chain.
Hype and politics. We’ve all read articles on reshoring. It’s worth considering what political, cultural or marketing value your manufacturing location brings. Would a Made in America stamp provide value, and what is that value?
Cost of working together. I fly to Asia regularly to visit vendors and we have a lot of feet on the ground supporting our clients there and in all the other manufacturing locations, but working with vendors in distant geographies is not without cost and this needs to be considered, both financial and the costs in time.
Shipping lanes. Consider the cost of stock that’s at sea, along with the inventory overhang if a model becomes obsolete while on the ocean. Also weight and form factor or size will play a part into the whole shipping cost equation.
Single or multiple sources. Dividing your business between two vendors can be risky, especially when it’s initially a modest volume, but being with a single vendor is also a risk. Proper risk analysis is essential.
Culture, social and environmental issues. Consider so-called soft issues that can become hard issues when you get into fields like military and aerospace, or when a preference becomes a compliance issue.
Get the design right. Some products are simple and have no variation, limited models, and little scope for customization, but consumers seem to be demanding mass customization and greater variety. These will impact on design as well as supply chain.
Clearly not all products are the same. Vendor and supply chain selection is a mixture of science and art, experience and process. Getting it right isn’t easy, getting it wrong can be much harder.
Mark Medlen, chief operating officer at Riverwood Solutions, is a career operations, engineering and supply chain professional with more than 23 years of global operations experience. Riverwood Solutions helps companies with manufacturing strategy, supply chain operations optimization, sourcing, and supply relationships.