The goals of companies are usually to improve sales output, improve customer experience, expand distribution networks and things along those lines. Very rarely do you hear a company say that they want to invest further into their supply chain…. so, why do companies make it so difficult when it’s clearly not bringing in as much money as a department that generates revenue, like sales?
People and companies tend to overcomplicate their supply chains. The majority of companies, unless you have hundreds of millions of dollars in revenue, should simplify their supply chain, especially if all of the products they make are within the same industry.
Having a supply chain team that dedicates themselves exclusively toward sourcing parts, planning production, and arranging assembly takes away resources from the main goal of the company which is generating sales. Companies now are partnering up with CM’s (contract manufacturers) that can improve efficiency and manage their supply chain.
Consolidating your supply chain into one centralized location will enlarge your company’s budget needed to expand sales, product development, and engineering.
Debunking the Top Reasons Why You Need A Complicated Supply Chain:
1. Protecting Your IP
Many companies think it’s safe to use multiple different suppliers for the same product. Rather than consolidate their supply chain into one company, they source each individual part. Then do this because they believe that it reduces the risk of their IP being leaked.
While in theory, this makes sense the question needs to be asked - Why would you work with a supplier that you don’t trust? If you are working with a distributor that steals your IP then why would you continue to work with them? You shouldn’t.
A number of CM’s have IP protection policies. Ask your supplier about their’s and also see if they work with any companies that are similar to yours. If they are the main CM responsible for assembly from a number of industry leading companies then you can likely assume that they are trustworthy. And if the answer is no, then you have to question if they are the right supplier for you.
2. More Cost Effective
A lot of people think it’s more cost effective to source subcomponents on their own rather than to have their CM source them.
Leading CM’s will have a list of pre-approved vendors they’ve worked with for years.
A popular method of working with a CM is to provide them with the full BOM and also their target costs. The CM will then be responsible for providing quotes for both in-house production and their pre-approved vendors. The goal for them is to at least match your current costs.
Most companies have a limit on the number of resources that they can effectively control. Rather than building an expensive sourcing team, it makes much more sense to expand your sales, marketing and engineering team to develop new products and to grow sales. It’s often best to find a CM that can hold their own weight and provide a comprehensive sourcing team.
3. CM’s Are Not Project Managers
If you are looking for a qualified CM to manufacturer a unique or customized product then they need to have a project manager. If they don’t then you probably shouldn’t be working with them.
In a CM, a project manager is responsible for tracking the entire process of the project and working with other departments (supply chain, production, quality and engineering) to track and report.
The project manager should be your point of contact and provide you with regular updates and new developments.
4. CM’s Lack Vendor’s For My Project
One of the greatest assets of working with a reputable CM is taking advantage of their list of pre-approved vendors. Validating a vendor doesn’t take just one or two projects, but years of collaboration to build trust.
Sometimes a company will specify an existing vendor or a list of vendors that the CM must buy from, which is fairly common. In this case, the CM is then responsible for using your list of suppliers and thus both parties accept the price and quality. This is usually more popular with projects that use electronics (ie. hardware, IoT, robotics, etc.).
Benefits of Consolidating Your Supply Chain
There are a number of reasons why companies choose to consolidate their supply chain. Why might the process of validating the right CM be complicated and messy, because it pays strong dividends in the end.
1. Better Allocation of Resources
Allocate more resources to sales and marketing rather than taking resources away from it to focus on sourcing.
2. More Cost Effective
CM’s prefer to have a larger chunk of the pie, rather than a small subcomponent. The broader your engagement with a CM, the better your pricing.
When you leverage a CM's full range of capabilities, your efficiency will improve and costs will likely be lower.
3. Better Lead Times
Your CM has a number of pre-approved vendors that include a variety of different materials. Consolidating your supply chain with them will give you access to those pre-approved vendors.
Rather than sourcing suppliers from all around the country or world, while driving your logistics crazy, you let your CM take the lead.
4. Stronger Development Support
If you provide a CM with a larger chunk of your product they will be more inclined to allocate their engineering resources to your project as well.
If you have more questions that relate to consolidating your supply chain, please feel free to contact us to discuss the pros and cons.