Managing the supply chains of low-volume production programs often involves the use of strategies and techniques that aren’t as effective or sustainable as volumes rise. In fact, the supply chain becomes exponentially complex and new management methods must be deployed. Consequently, we recommend the four steps below that outline a process for developing a more sophisticated supply chain; one that can be more efficiently managed and takes advantage of large production volumes.
4 Steps to Improve Your Supply Chain When Moving from Low to Mid-Volume Production
1. Develop a Thorough Production Schedule
Low-volume production scheduling is often governed by one or more common constraints. Issues such as cash-flow, staffing, product design, lack of sales, lack of proper equipment, and the fact that the product is new and no one has experience producing it are all common issues which limit production volumes. It’s common to find manufacturers in this position producing as much as they can given their constraints. But when these constraints begin to loosen – i.e., cash investments, published designs, boosts in sales/demand – manufacturers now have more choices when it comes to how much product they want to produce and when they want to produce. It’s up to each individual business to decide what production strategy works best for them.
There are endless strategies for deciding production volumes. Some businesses wish to produce as much as they can to build up inventory to de-risk, other businesses may want to limit production to increase their demand; however, a thorough production schedule should be developed in every case. Parts are typically easy to find and obtain during low-volume production.
A common strategy for low-volume programs is to source many off-the-shelf parts through local distributors, allowing the manufacturer to readily get the parts they need. But as volumes increase, distributors will quickly run out of the parts needed. At this point, it’s smart to work directly manufacturers for off-the-shelve parts and/or design more custom parts to meet the design requirement. Although these strategies can increase lead times, they provide lower costs and ensure demand can be met.
To effectively and efficiently manage these larger lead times, a production schedule is a must, and the more precise the production schedule, the better. The production schedule, in combination with lead times given by suppliers, will allow supply chain managers to quickly and clearly understand how many parts they need and when they need to be ordered.
2. Create Long-Term Supplier Contracts
As previously mentioned, when volumes increase, many parts won’t be readily available through distributors. To ensure that the manufacturer will always have availability when they need it, long-term contracts with suppliers are necessary. After creating a production schedule, talks with suppliers should become easy. These long-term contracts benefit suppliers by safeguarding business for the long run and de-risk your supply chain by ensuring parts will always be available. In addition, long-term contracts often offer special pricing, dedicated account managers, custom modifications to existing off-the-shelve items, and direct communication with engineers.
Long-term contracts for custom parts allow suppliers to make capital investments which reduce piece price and increase volumes. These contracts also provide the opportunity to consolidate the supply base. As suppliers learn more about the product(s), they’ll often point out parts they may be able to help with and reveal capabilities they have that were previously hidden. Supplier consolidation is key to effectively managing a mid-volume supply chain.
3. Build a Logistics Network
When working directly with manufacturers, supply bases will go from being local to global, and when this happens logistics must be considered. Setting up a logistics network can be challenging as it’s often a blank canvas. Perhaps it makes sense to build a new manufacturing facility nearby a primary supplier, or maybe most of your suppliers are located in a separate area of the country and it makes sense to move all operations closer to them. It also might make sense to find a warehouse to store long lead time parts or to find a warehouse which is centrally located to all manufacturing facilities.
In addition to working with a new supply base, increased volume production often means higher product demand. Depending on where this demand is coming from, it could be wise to construct new warehouses or build distribution centers that hold finished goods. The options are endless. Because of their complexity, modeling what could happen to lead times and costs as logistics networks are developed is a smart idea. Manufacturers should also consider developing various transportation and logistics partnerships. Third Party Logistic companies (3PL’s) have developed their own logistics networks which their partners can tap into.
4. Generate a Backup Supply Base
This step is critical to de-risking the supply chain and goes together with the principal of supply base consolidation. The easier the supply base is to manage, the more effective it’ll be. As supply bases are consolidated (to make management easier), the manufacturer becomes more dependent on their suppliers and risk rises. While primary suppliers should always be reliable, random events still occur and can cause disruption. Contingencies and back-up plans should always be put in place if key suppliers were to fail. To generate a thorough backup plan without expanding the overall supply base, consider identifying current primary suppliers as backup suppliers for parts they aren’t currently producing. It’s important to understand the full set of capabilities each key supplier has, as it’ll allow for a more agile and flexible supply base.