CGN Edge Blog

Challenges in Supply Chain Restructuring Programs

Mar 20, 2019 1:10:21 PM Posted by: Pranav Kulkarni
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Supply chains are becoming more global by the day. It is very important to maintain a nimble supply chain that differentiates brands from being “order qualifiers” to “order winners”. Companies expand and shrink, which require streamlined manufacturing and supply chain footprints, resulting in massive restructuring programs.

Restructuring programs deal with major “lift & shift” activities involving manufacturing, tooling, transportation and warehousing assets. Programs of such scale need tremendous amounts of planning, starting from contingency sourcing, facility readiness, finding new suppliers, buffer planning, manufacturing process and production readiness.

Reasons to Initiate Restructuring Programs

  • Cost Savings
  • Outsource non-core products and services
  • Improve supply chain network efficiency
  • Facilitate growth strategies
  • Mergers and acquisitions
  • Operations consolidation
  • Getting closer to customers

 

The key stages involved in large scale restructuring/transformation programs is explained in the following graphic.

Key Challenges & Considerations

  • Defining program scope and make vs. buy decisions in the restructuring programs go hand in hand. Costs, competency, core/non-core and future constraints are a few important aspects to consider.
  • Changes in economic policies also affect restructuring programs. Close monitoring of new policies and macroeconomic factors drive sourcing and other supply chain decisions.
  • Integration of new products, production operations, logistics and distribution are critical to restructuring programs. It also includes integration of I.T. and accounting systems, people coordination, and ensuring a cultural fit.
  • Cost inflation in outsourced products and services impacts the overall program. Therefore, probable process and raw material cost inflation should be taken in to consideration while designing a program. Transformation program cost includes the cost of additional resources, planning costs & costs associated with unknown risks.
  • Closure Dates for facilities is another crucial area of concern. For all restructuring projects, it is important to plan and execute the phase-in & phase-out of facilities. Often, they result in delayed closure, due to ramp-up issues and the ability to maintain a stable workforce at the closing facilities, during the transition phase.
  • Reducing waste, during transformation, is a challenge in front of stakeholders. It is important to have a burn off plan for all inventory in the pipeline, especially for supply chains with long lead times. Sometimes, it comes down to scrapping certain inventory to complete the transition. In many cases, transition dates could be pushed out, while all inventory in the supply chain is consumed.
  • Capital investment and budget allocation for inventory ensures a smooth transition of products, from one facility to another. Transformation inventory requires budget allocation for capital cost. Efficient inventory planning ensures uninterrupted supply, during the transition phase. It is important to design a strategy, which is responsive to changes in required transformation inventory. Transformation inventory is based on product development at the new facility, exit date for the current facility and demand, during the transition time. All of these factors can change in the middle of execution, requiring a flexible and responsive inventory planning process.

CGN Approach

CGN has deep expertise in helping our clients in massive supply chain restructuring programs. CGN’s proven control tower tools are designed to create supply chain visibility and proactively manage transformation programs resulting in maximum ROI.