By Vivek Vanapalli & Himanshu Aggarwal
Most businesses are cyclical in nature. The variation in demand dictates rise and fall in production quantities. In case of industrial manufacturing, such cyclical behavior is significantly correlated with overall health of the economy. Due to this, whenever there are economic upturns, OEMs often suffer from capacity constraints in their existing supply base, which leaves them with no option but to switch suppliers to ramp up their own production schedules. The effort in switching suppliers, is similar to that of conducting a sourcing exercise, but with a few added layers of complexity such as, time constraints, transfer of purchase orders from incumbent to new suppliers, while striving for minimal disruption of existing operations, and a macroeconomic environment where overall demand is leading supply. It becomes imperative to have a clear disciplined approach to execute supplier switching, to obtain desired results. The following work methodology is one such effective and efficient way.
Common pitfalls and how to overcome them:
Request for information (RFI): It is important for the sourcing team to extensively ask detailed questions which clearly capture the supplier’s capacity, capability and willingness to work with the company. Following the initial screening through RFI, a more detailed audit of the supplier’s facility is required before approving them for any RFQ. This step may be time consuming but necessary as it will ensure minimal risk in undesired surprises at later stages of the procurement cycle.
For the switch in suppliers to be impactful and alleviating the switching pains of the supply-base, it is vital that the bottleneck of components are prioritized for switching. For this to happen, it will be essential that the RFQ package being formulated has inputs from the Supplier Collaboration Manager and the Supplier Development Manager. These individuals are better informed on incumbent supplier bottlenecks and production processes of different part numbers. They can therefore use their judgement on top of data driven facts in developing RFQ packages. These steps should alleviate the maximum pressure from the incumbent by switching suppliers in the least amount possible.
Communication gaps with the new supplier
As stated earlier in economic upswings, free capacity is at a premium. Therefore, it becomes extremely important that, as a buying organization, you communicate your emergencies and priorities to suppliers. Setting up an open channel of communication with the RFQ suppliers, through governance and cadence, to facilitate a barrier free exchange of information goes a long way in expediting quotes and resolving queries.
Leveraging existing assets
New suppliers will often require new tooling, which will not only be costly, but also adding the cost of lead times. Hence, it is always prudent to explore the possibility of transferring the existing tooling from the incumbent supplier to save both time and money.
CGN Global, with its expertise in supplier management, procurement, and data analysis, has successfully executed such switch in supply-base projects for various clients from a global supply perspective. These projects have enabled uninterrupted production at the OEM, despite supply-base challenges.