As a smaller manufacturer, you continue to be more vulnerable to global supply chain disruptions than larger companies. Having to pay more for materials, parts or shipping is a difficult dynamic as you may not be able to absorb short-term losses or even a lower margin. But cost becomes less important if you can’t deliver a product, and as uncertainty has been magnified, it is now essential for you to manage risk by preparing for and adapting to unexpected disruptions in order to increase your resilience and be responsive to customers. In many ways the disruptions show how small manufacturers are more critical than ever. Many big companies are looking for additional domestic sourcing and do not want to take on additional liabilities and capital investments from bringing more in-house. Those companies also are looking for trusted relationships in their supply chains that will work with them to provide added value from sustainable solutions and even product development. A key aspect of being a trusted supplier and providing sustainable solutions is being resilient. Resilient manufacturers operate with situational awareness of all aspects of their business environment, from their supply chain inputs, to their in-factory processes, to their customer and market outputs. Resilience doesn’t just mean reacting to catastrophic changes to remain in business. Rather, resilience means being proactive about understanding and anticipating all kinds of inevitable change and putting in place the strategies and tactics that allow a company to be both stable and agile at the same time.
It starts with risk awareness that can be realized by conducting assessments of the full system of business operations: inputs, processes, and outputs. Systems-based risk awareness allows a company to understand challenges in their supply chain, in their factory, and with their customers and markets – before those challenges become pressing problems – and manage them accordingly. This includes pricing and costing.
Many small manufacturers are now looking at more than just the per unit price. They are now looking at the total cost of ownership (TCO) in their supply chains and asking how they can add value for their customers. Part of the strategic shift is from manufacturers realizing that the costs are considerable for freight, tariffs and time. Looking at the true cost via the TCO approach rather than at just the per unit purchase cost can help you better evaluate sourcing.
Many manufacturers are pursuing domestic sourcing for materials and supplies as a way to overcome supply chain disruptions. There are substantial long-term benefits to reshoring including:
- Reliability: Overseas suppliers means living with tariffs, global politics and economies and natural disasters in faraway places.
- Trust: It’s easier to establish a relationship with common languages, cultures and proximity, and relationships become critical during disruptions. Relationships are key in understanding if a supplier can grow with your business and innovate alongside you.
- Business Ethics: Concerns about overseas suppliers with intellectual property (IP), knockoffs and tooling are well documented. The U.S. has some of the strongest IP protections in the world, so working with a domestic supplier decreases the chances of IP theft.
It’s difficult and time-consuming to build and maintain relationships, but growth in domestic sourcing will come from medium and larger manufacturers who invest more in smaller domestic suppliers to solve shortages and other arising issues. It’s an important part of the reshoring mindset.