Supply Chain Response to Demand Surge

Many different factors trigger variations in demand. Poor forecasting, change in demand of substitute products, expectation of customers (shift in customers’ preference), price at global level, increase in number of customers, change in government regulations, technology improvements are some among them. OEM's strive hard to react to unprecedented growth in demand and try to reduce the gap in demand and supply. Demand variability could be radical, it is interesting to see how the supply chains reacts when there is an upsurge. This will help the entire supply chain (OEM’s, suppliers) to reduce cost and increase revenues, hold the market share and customer satisfaction. Among the many factors affected in these situations is inbound supply chain performance i.e., how suppliers react to OEM's abrupt increase in demand. Supply base will be stretched in terms of existing production capacity. Suppliers (both internal and external) will face issues in meeting the OEM's production schedules. Measures to mitigate the risk can be:

  • Intense focus on critical suppliers to assure material supply
  • Supplier outlook to provide schedule visibility and drive supplier delivery commitments
  • Create visibility to demand variability
  • Enable alignment between functional groups
  • Facilitate day-to-day tracking, monitoring and issue resolutions on delivery commitments/ shipments from critical suppliers

 

Approach to mitigate the risk

Figure 1. Approach to mitigate the risk

A  few factors affected in reacting to these situations are Performance, Delivery and Quality.

Performance:

Managing supplier performance is one of critical factors that affect OEM operations. OEM’s need to work with the supplier and understand the voice of the supplier. Supplier performance can be improved by:

  • Reviewing service level agreements, assess high risk suppliers, drive mitigation plans and build interactive supplier dashboards
  • Firm schedules to supplier: proper forecasting techniques will help to predict the demand increase and have better planning.
  • Reduce demand variation: to address the variation in forecasted demand to the supplier, add the difference to the next schedule (continuous review method). If the supplier is not able to meet the loaded demand, find alternate suppliers to fulfill the variation.
  • Reduce variation in lead time from the supplier, prioritize and freeze schedules.
  • Identify critical part numbers and alternate suppliers to fulfill the demand
  • Ensure Tier I suppliers have firm orders with Tier II suppliers
  • Optimum inventory levels at different nodes in supply chain
  • Understand resource changes and engineering changes with PFEP
  • Collaborate with suppliers on part numbers to address the demand variations
  • Regular stakeholder updates within the organization to mitigate the risk

Delivery:

OEM's aim for on time delivery from suppliers, past dues will cause challenges in supply, inventory, logistics and transportation. Issues get worse when there is a spike in OEM demand. As discussed earlier, schedule visibility and demand variability will help OEM and suppliers to have a clear line of sight. OEMs need to team up with Suppliers to avoid line down situations. Quick wins will be to collaborate with key internal and external process partners, drive delivery commitments and ensure on time shipments.

Key factors that will help reduce the issues in delivery are:

  • Inbound Supply Chain Network Analysis
  • Monitor the production plan schedule
  • Assess the supplier delivery risks
  • Reduce past dues, focus on critical suppliers
  • Weekly cadence to understand the fluctuations in demand
  • Daily stand up meetings (internal) to avoid line down situations

View of Supplier Shipping schedules not on time

Figure 2. View of Supplier Shipping schedules not on time

Four-week Snapshot of Supplier Shipping Performance (SSP)

Figure 3. Four-week Snapshot of Supplier Shipping Performance (SSP)

Quality:

To remain competitive and reach out to Customer satisfaction OEMs expect the suppliers to delivery right product at right time at right place and right quality. Quality has become integral part of supply chain as defective parts lead to non-conformance and increase past dues. Measures that can lead to good quality of parts from supplier could be:

  • Inbound quality checks to reduce defective parts coming into the system
  • Alternate options to rework at local machine shops
  • Collaborate with supplier development engineers and logistics planning analysts to deploy continuous improvement activities at suppliers
  • Identify source of defects by post production review, testing and re-work
  • Provide visibility of quality performance (PPM)
  • Adhere suppliers to low PPM's

CGN can handle “increase in demand” situations with a control tower approach. We formulate a communication hub and collect key metrics into a single source to ensure focus in prioritizing efforts/decisions. Once completed, we develop a dashboard based approach to track KPI’s, support decision making, and provide end-to-end visibility on the value chain.

Control Tower approach.

Figure 4. Control Tower approach