Minimize Your Supply Chain Risks: Just One Idea

Has your company recently outsourced its manufacturing or the company is sourcing its major components or subassemblies to an Asian or Chinese based supplier? What risks are incurring by sourcing 6,000 miles away from either your customers or factories and stretching your lead times. What steps have you taken to minimize the risk of shutting down your factories or not delivering to your customers?

Certainly the attraction to source in the Asia or China is the cost benefit. How much are those cost benefits worth if you cannot build your products or deliver your products to your customer for some time? Here are some options that should be considered when designing your supply chain that includes an Asian supply base.

How predictable are your suppliers can they provide product 100% on time 52 weeks a year,7 days a week without any quality or delivery issues? Consider if there are no contingency plans in place you could be faced with some daunting decisions; ocean freight with a five week delivery, airfreight with a three to four day delivery at 2 to 4X the cost of ocean freight, or chartering an aircraft in extreme cases which could cost $500K. Here is one of several options that could be implemented with your Asian supplier base.

Vendor Managed Hub (VMI Hub) – Wouldn’t you consider reducing your inventory exposure and risks to your supply chain by having your supplier take on the burden? Using a Vendor Managed Hub would be an excellent way to accommodate your needs. You should discuss this concept with your suppliers with the expectation of having your key components, sub assemblies or assemblies stocked in your local geography close to your factory or distribution point. The inventory levels will depend on a lead time risk and needs assessment in conjunction with your supplier’s inventory replenishment models. A Vendor Managed Hub can either be managed by an outside logistics company or managed by the supplier. A VMI Hub provides a couple of key benefits. First, the VMI Hub reduces your company’s raw inventory costs by removing the financial burden of carrying weeks of inventory and any additional safety stock. Your raw inventory exposure is limited to the material that you order and per your master schedule or customer orders. Second there is higher probability that your suppliers will have higher levels of inventory and provide material when there is a break in your Asian supply chain. This will help insulates your company from stock outs or other supply or quality issues in your supply chain. In either case, the VMI Hub or Supplier Managed Warehouse must be strategically located close to your assembly or distribution point to ensure that either finished product or materials can be delivered in hours vs. days. If your company cannot support the VMI model due to business volumes, consider partnering with other companies in your industry or other suppliers in your supply chain to form a multi company or supplier Vendor Managed Inventory Hub?

In my opinion when your supply chain is a critical part or considered a competitive advantage of your business a Vendor Managed Hub is a critical part of your supply chain strategy.