A Real Economy publication

Manufacturing industry outlook: Fall 2022

4 manufacturing supply chain strategies for the changing competitive landscape

Aug 29, 2022

Manufacturing industry outlook key takeaways

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Digitizing the supply chain is critical to streamline business and bring operational efficiencies to scale.

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Small and midsize manufacturers must create policies that permit the sharing of data in real time.

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Businesses should ramp up digitally supported continuity planning and optimize the use of data. 

Manufacturing Economics

How manufacturers can use technology to stay competitive

In the last few years, creating more resilient supply chains has become a top priority for manufacturers as unprecedented business uncertainty has underscored the importance of expecting the unexpected. Catastrophic headwinds have required organizations to adapt mitigation strategies to improve supply chain resiliency and boost digital maturity, both of which provide a competitive advantage.

For larger manufacturers, the pandemic accelerated investments into supply chains that were underway, and has forced the hand of smaller manufacturers that were less prepared. As companies continue to build back from the disruptions of the pandemic, geopolitical tensions, and rising inflation, those that can think big, start small, and learn fast will have an edge in the future.

Businesses are acutely aware of the ripple effects supply chain challenges have had on their operations. In our RSM US Middle Market Business Index supply chain report, 48% of 404 survey respondents said in April that their organizations experienced significant negative effects due to unexpected changes or disruptions in supply from an upstream supplier during the previous 12 months. Those issues had an outsize impact on smaller midmarket firms—those with $10 million to $50 million in annual revenue—the report found. These unexpected changes continue to have significant impacts on manufacturers, including increased pricing and fulfillment challenges.

Unexpected changes or disruptions in supply the organization/business experienced during the last 12 months*

Unexpected changes or disruptions in supply the organization/business experienced during the last 12 months

The days of reliable supply and easy movement of goods seem to be over for now. In an April 2022 survey by the Manufacturing Leadership Council, over half of manufacturers who responded said they do not expect supply chain disruptions to improve for them this year or possibly next.

Manufacturers can focus on four main areas to build resiliency in their supply chains: enabling digital supply chains, increasing collaboration in supply chain networks, moving supply chains closer to production and end markets, and ramping up digitally supported continuity planning. Here’s a closer look at each:

1. Enable digital supply chains

For middle market manufacturers, digitizing the supply chain is critical to streamline business, bring operational efficiencies to scale and remain competitive. Businesses must harness their data and integrate it with third-party data to build a real-time data model to analyze that information. Many businesses already have sophisticated, cloud-based enterprise resource planning systems that offer supply chain management functionality but fail to fully use them to their potential. Companies should use the full capabilities of those systems, in tandem with machine learning and artificial intelligence applications, to improve their ability to predict negative outcomes and engage in more effective planning.

Many companies are already racing to digitize their supply chains. Another recent MLC study found that companies are planning significant increases in digital adoption within their supply chain over the next two years, with a focus on advanced technologies, where the investment is expected to double.

Adoption of digital technologies in supply chain

Adoption of digital technologies in supply chain

These investments will help address the headwinds facing manufacturers across the supply chain—but companies need to examine their supply chain processes as well if they want to become truly nimble. “If you have a bad process in place, technology won’t fix it,” says Jason Alexander, manufacturing sector leader at RSM US LLP. As a result, many organizations are taking the race toward digital adoption as an opportunity to drive extensive redesign of the supply chain process. These transformations create tremendous opportunities for those that do it right and do it now.

An MLC survey from April 2022 on transformative technologies found that some manufacturers felt they were falling behind competitively in the digital race. More specifically, only 5.5% felt they were substantially ahead of their competitors in terms of transformative technologies, compared with 11% the year prior. And 21.8% saw themselves as slightly behind competitors, up from 13.5% last year. By embracing digital capabilities and accelerating digital technology adoption now, manufacturers will be positioned to capture growth and protect profitability well into the future.

2. Increase collaboration in supply chain networks

You can’t fix what you can’t see. Some of the largest manufacturers have over the last two years deepened their visibility into many of their tier 3 suppliers—an effort that was underway before the pandemic. This means that small and midsize businesses must create policies that permit the sharing of data in real time, if they want to maximize their relationships with those larger companies. The need for this approach is apparent; only 12% of manufacturers in the April 2022 MLC survey said they still use the “just-in-time” approach to inventory. Without a JIT inventory approach where one existed before, companies will end up with an increased planning burden that requires deeper visibility into sources of supply. 

Is the "just-in-time" approach still viable for your company or are you rethinking that model to provide more inventory buffer?

Is the "just-in-time" approach still viable for your company or are you rethinking that model to provide more inventory buffer?

The JIT approach simply breaks down in an environment where there is a single point of failure. In the same survey, 47% of respondents said they have a goal of fully integrating their supply chain functions within the next two years. The technological hurdles companies must overcome include differing data platforms, old processes and willingness among business trading partners and suppliers to share data.

3. Move supply chains closer to production and end markets

Most U.S. manufacturing production shifted to lower-cost environments over the last 40 years. Reliable and predictable schedules, lower labor cost and easier access to labor were contributors to making this work, in addition to generally facilitative trade policy.

Most industries—with some exceptions such as semiconductor manufacturers, which announced $32 billion in 2021 to build U.S. factories—are not able to shift significant portions of production back to the United States easily. Nearshoring operations closer to the United States or regionalizing in the Americas is one solution on a case-by-case basis. Businesses that can bring production to the United States will need to invest in the U.S. workforce through creation or support of apprentice programs and consider hiring and retraining workers from sectors that are shrinking and can be retooled. To shorten supply lines as much as possible, labor availability and skill sets must be planned for in addition to labor costs.

4. Ramp up digitally supported continuity planning

Recent simultaneous global events—from the pandemic and workforce shifts to geopolitical conflict and sky-high inflation—were difficult to conceive of a few short years ago. To better prepare for future uncertainties, businesses must harness their data and optimize its use through methods such as scenario modeling and sensitivity analysis.

For example, democratized, cloud-based machine learning and predictive AI tools can model sales and other internal data and find correlations with macroeconomic time series data. Such tools are proving effective due to the speed and frequency at which they can be updated and give insights to management. This enables management to develop mitigation plans for the most disruptive and highly probable risks or, alternatively, decide it is time to shift their investment strategies. 

Manufacturing companies are feeling the heat

While the pandemic-induced pressure to boost agility and flexibility will continue to force manufacturers to focus on building resiliency and digital strength, organizations should not embark on supply chain transformation in a silo. Rather, companies should develop partnerships with an entire network of suppliers. Doing so will help to mitigate risk, increase visibility, enable easier pivoting and overall boost the organization’s competitive edge in the future.

RSM contributors

  • Matt Dollard
    Matt Dollard
    Industrials Senior Analyst
  • Katie Landy
    Katie Landy
    Industrials Senior Analyst

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