In a recent conversation, our resident expert in supply chain risk management, Jordan Rieker discusses all aspects of managing supply chain risks in the industrial supply chain, including tariffs, demand fluctuations, and lead times. Learn more about sourcing strategies, where he emphasizes the importance of strong supplier relationships, transparency, and the future of supply chain management.
Understanding Sourcing Strategies
Supply chain management begins with a plan around both single and dual-sourcing strategies. “While having multiple suppliers can be beneficial, we have no issues with single sourcing if it’s necessary due to specific manufacturing requirements, or if it provides better pricing, quality, or supply advantages,” explains Rieker.
ProcessBarron’s geographical location in Alabama is beneficial when sourcing from the steel industry, which constitutes a significant portion of its annual spending. When opting for single sourcing, it’s critical to understand the potential risks and be prepared to pay extra if the primary source becomes unavailable due to unforeseen circumstances like force majeure events.
The Benefit of Supplier Relationships
While data and financial considerations are crucial, having strong supplier relationships, by fostering good partnerships built on transparency and trust is key to achieving mutually beneficial outcomes. To ensure transparency, using cost-plus contracts enables our team to audit and assess pricing. It’s vital to obtain multiple quotes for comparison, including quotes from long-term vendors, and maintain open communication about pricing and industry trends.
Supply Chain Risks
Tariffs
The impacts of tariffs on the supply chain are significant for industrial manufacturers, potentially affecting lead times and pricing for imported materials and components. The timeline for seeing significant effects from tariffs could range from 6 months to 2 years, depending on various factors including government actions and industry responses.
Unforeseen Demand
Spikes in demand are also considered a major risk. For example, there are challenges when unexpectedly large orders are placed. Those kinds of sales, if not anticipated, have the potential to deplete two years’ worth of stock. We can reorder but there is a cause-and-effect relationship when managing inventory.
Lead Times
Lead times are another critical risk factor, varying depending on the type of material or component. For example, steel from service centers can be obtained quickly, while castings may take 3-4 months, and items from overseas could take up to 6 months including production and shipping time.
ProcessBarron’s production is largely dependent on maintenance schedules and unexpected breakdowns, making it challenging to predict exact production volumes for specific parts..
How to Mitigate Supply Chain Risks
To mitigate risks, it’s crucial to maintain a safety stock of items, cultivate strong relationships with vendors, and regularly evaluate minimum and maximum stock levels for inventory. Consider partnering with a logistics company to leverage their expertise and vast network of transportation resources for managing logistics-related risks.
Having a safety stock is a crucial element in mitigating supply chain risks. “Consider maintaining additional inventory beyond the regular reorder point to account for potential delays or unexpected spikes in demand,” said Rieker.
Items with longer lead times (3-6 months) or sourced from overseas, Rieker suggests doubling the safety stock to ensure adequate supply. He recommends balancing this by reducing reorder quantities to maintain cash flow efficiency.
For inventory management, setting minimum and maximum stock levels, as well as reorder points will notify you as these items need to be replenished. An Enterprise Resource Planning (ERP) system is key when tracking orders and managing inventory efficiently. Data-driven decision-making using historical sales data provides insight when determining the appropriate stock levels and identifies slow-moving inventory.
When ordering commodity items such as screws, a safety stock factor of 1.25 is used, which equates to roughly a month and a half of inventory. This factor decreases as the risk associated with the item diminishes.
While acknowledging the unpredictability of future political climates, Rieker suggests that while new issues will always arise, they often present familiar challenges with new faces, emphasizing the need for adaptability in risk management.
Get ahead, purchase industrial spare parts, and increase your safety stock.
Understanding Inventory Data
Success in risk management, including supply chain management, is heavily dependent on having access to the most information, drawing a parallel to other aspects of life and business.
Data provides knowledge that identifies patterns and equips teams. If your company has historical data this can be a huge advantage. For example, a company with 20 years of data can predict a customer’s five-year buying cycle for part replacements, while a company with only six months of data would miss this pattern and would be unable to anticipate inventory levels impacting lead times and customer service. Utilizing computer systems to gather data, engaging with industry contacts, and visiting vendor locations are tactics for gaining firsthand knowledge of operations.
To be successful in supply chain risk management, ask questions, get involved, and be prepared to learn. Having the most knowledge leads to having the most answers and being the most successful when supply chain risks arise. We may not be able to predict the future of supply chain management but one thing is for certain, “He or she with the most information wins,” explains Reicher.
Partner with Us
At ProcessBarron we focus on quality. By addressing all aspects of supply chain management, we can keep your plant up and running. Work with the experts from dream to done. Our team at ProcessBarron can supply your air, gas, and bulk material handling needs. Find a ProcessBarron sales representative.