Plan "B" for your China Supply Chain
Volume 2 | Number 10 | October 2019
What's Plan "B" for your China Supply Chain?
Let's start with the realization that plan "A" to relocate operations to China had a major flaw. If you moved manufacturing to China, India or any other low- cost producing country with the intention of importing goods back to North America or Europe (half a world away), then your plan was unsound!
I was taught to do everything possible to reduce lead-times and increase inventory velocity! Why is this important? Longer lead-times increase inventory. More inventory equates to less profits. Why? Because inventory delays fixing problems. When I see corporations chasing the labor "ghost", I cringe! Labor typically accounts for 8-12% of the total cost of ownership. But too many leaders only have one play in their play book: to reduce labor costs by moving head count to low cost countries! They are missing 90% of the total cost of ownership!
Why? Leaders view raw materials as a fixed cost. And inventory carrying cost incrementally at about 6% (Prime +1), and too often leaders believe the only variable they can control are labor costs.
We have not injected Operational Excellence into our American DNA.
Yes, we have innovation in our DNA: just look at Tesla, Apple, Facebook, Google, and Amazon. However, too often, corporations are looking to the silver bullet of innovation to resolve their lack of global competitiveness.
Operational Excellence is the long-term game plan. It takes patience, tenacity and grit to achieve it.Operational Excellence, gains are typically more sustainable, enterprise empowering and greater long-term profits are the result.
If the US is going to regain manufacturing leadership, we must establish and inject the Operational Excellence philosophy into all functions of our enterprises
We cannot forget the total cost of ownership. Over the long-term, when lead-times are increased, so are total costs.
Longer lead-times typically increase forecasting variance which necessitates more inventory.
The longer lead-times and increased inventories negatively impact customer service with lost flexibility and responsiveness to change.
Engineering changes take longer to implement and are more costly
Cost increases to support a complex supply chain.
Cost of quality increases due to the length of the supply chain.
Cost of Inventory Increases.
Obsolesce cost increases.
Inventory shrink, loss and damage increases.
Transportation cost increases.