Do you know your Bill of Materials?
“The best time to plant a tree was 20 years ago. The second best time is now.”
– Chinese Proverb
We are releasing this article in light of the Coronavirus Pandemic. While is best to fully understand your supply chain during the launch of a new manufacturing program, taking remedial actions to form a complete overview is the next best thing. Enterprise resource planning systems are fragile, built on forecasts provided in good faith when things are business as usual. In a crisis, those assumptions often crumble without warning. Each passing day without a total supply chain review limits the options for successful mitigation. We hope this article will help in the creation of "War Rooms" focused on preparing for, operating in and emerging from this crisis.
Coming to terms with the situation
Many manufacturing facilities, whether large or small, OEM or tier n; are subject to an assigned supply chain. Very few facilities have a voice as to the composition of their supply base partners, nor does the supply chain truly get to pick their customers to whom they supply components. They are often forced into a symbolic arranged marriage late in the development process. Pricing or previous volume commitments forged from an array of corporate groups hundreds or thousands of miles away dictate the terms. This analysis is not to argue for or against such processes, but rather how to remain prepared and best-positioned for disruptions.
Interruptions are inevitable, organization improves responsiveness
Supply chain disruptions across all industries have come in multiple forms over the past 20 years, from local or regional to globally impacting events. Manpower constraints and maintenance failures in tooling, equipment, or facilities have existed from the beginning of manufacturing. In the modern era, internet or software issues, large communication outages, and complexities with local IT infrastructures are the burden carried in exchange for faster and more complex communication. Single-sourced facilities producing key components have caught on fire; or even exploded. Manufacturing and transportation union disagreements have played roles in parts not meeting their assigned endpoint. Even with our vast, continuing medical advancements, our global society has battled various diseases such as flu epidemics, SARS and today, COVID-19. The potential disruptions to the supply chain are endless, but one thing remains the same, most personnel will attempt to react after it is too late to avoid disruption. While not every disturbance can be prevented, proper communication and planning on the front end can provide additional mitigation options; that may enable you to squeeze through the restriction at hand.
You can't manage what you don't understand
The first step to mitigating risk (with an already sourced supply base) is understanding all the components that compile your bill of material(BOM) throughout the nth tier. Every product has a BOM, but not all BOMs are created equal. Depending on the maturity of your Engineering and Sourcing departments, an accurate and properly exploded BOM may be difficult for a plant-level materials department to acquire. Throughout the value-added process, including the OEM level, responsible engineers and program managers create drawings and material databases at an interpreted level. One would assume an industrial or corporate standard exists for such documents, but there are rarely hardline specifications in place to ensure consistency across platforms or commodities.
In the infancy stages of pre-production builds, teams are lean and stretched thin. Corralling late and under-developed parts for the proceeding trial or expediting for the current trail takes time and must accompany the creation of material master data in the MRP system for potentially hundreds of pieces. Given constraints, this rarely feels like the optimal time to extract granular details of your supply chain. However, the beginning is the best opportunity to set the expectation with your suppliers that they command an intimate knowledge of their responsible components, and corresponding BOMs. Communicate clear outputs and maintain stringent follow-up, with adherence to defined deadlines. Conversations should take place primarily by phone to avoid delays in information flow stemming from a global supply chain that spans multiple time zones. Detailed notes and follow-up requests should be well documented by email.
Understand the risks, not all parts are created equal
Once completed, you should have a confirmed BOM, expanded to include all parts on a one-off basis. These parts are now tied to the point of manufacture by name and location. It is imperative that you understand their sourced capacity and associated restraints, whether it be for materials, staff, or time allocation on a piece of equipment. Shared resources should be identified. An indication of hourly output, sourced capacity compared against weekly capacity, will provide insight into allocation for your project vs. other customers. Frequently, the weekly capacity will not be divulged, so more creative means may be required to gather this data. During times of potential disruption, detailed knowledge will allow you to react faster, improving your chances of securing additional open capacity.
Next, gather the sourcing availability of your components by completing a quantifying high-level risk assessment. A simple scale on 1-3 will suffice, depending on what parameters make sense for your industry and commodity. Here is a sample of a straightforward ranking:
Surprises are costly, take action now
This activity will be very time consuming, and seemingly non-value-added during times of regularity, but is essential in a crisis. Although a lot of this information will not be readily available and will require detailed record-keeping and commitment, it will allow your company to move preemptively in future disruptions.
Once the BOM is expanded to include upstream suppliers and components, a proper runout analysis can be conducted. Production, inventory (components and/or raw material) and parts in transit should be considered to provide a holistic view through the various stages of completion. When compared to daily/weekly requirements, this data can provide a complete picture of the supply chain and potential point of impact. Depending on the disruption, the appropriate plan of action can be executed when the allotted time (total available components) is known.
Keep communication open and thorough
Not communicating and assuming that customers are aware of issues impacting their supply chain, the supply chain is a mistake. Waiting for the issue to materialize means little to no time is spent preparing, which leads to unplanned shutdowns as opposed to controlled stops or variant switches. In a crisis, no news is not good news. Push suppliers to provide details on any possible impact and push to ensure they are speaking with their suppliers as well. Ask for confirmation and never assume.
To learn more contact us at: Crisishelp@Seraph.com
Seraph's team of operational managers and senior consultants intercede on our client's' behalf to fix crises putting businesses at immediate risk, turnaround situations damaging the bottom line, and restructure operations to improve the balance sheet. Seraph has successfully delivered projects in the Americas, Europe, China, and India. Seraph’s industry expertise includes Aerospace, Automotive, Energy Infrastructure, Healthcare, and Medical Devices. Through our other operating companies, we are continually looking for distressed situations where we can put our expertise and capital to work to create value.