The responses we received during the survey for the second 2022 wave of the Sikich Industry Pulse for manufacturing and distribution highlight the criticality of real-time intelligence in managing manufacturing supply chains under volatile business conditions. The optimism of survey respondents has declined compared to what it was a year before. The three top contributors to this are said to be inflation and economic decline, supply chain obstacles, and talent acquisition struggles. What’s likely to also play into this is that respondents have become more deeply aware of the difficulties that confront the manufacturing and distribution industry, along with strategies to address them. Below, we take a closer look at manufacturers’ and distributors’ current challenges and offer some recommendations for tackling them.
Should customers share cost increases?
Fully 100 percent of the survey respondents have experienced price increases, and 99 percent pass at least a portion of these on to customers. To mitigate higher costs and protect their margins from erosion, 51 percent have adopted bulk purchasing. Forty-six percent purchase from alternate, lower-cost suppliers, and 31 percent substitute less expensive materials for their original choices.
Data evidence from the events and trends in your business can help you reduce the risk in making decisions like how to mitigate cost escalations. However, Sikich consultants often talk to manufacturing executives who don’t know with certainty what their actual costs are or how the expenses of labor, materials, and operational overhead impact their margins. They have limited insight into customer attitudes, account churn, or the profitability of customers and customer segments. That makes it difficult to anticipate how many customers might accept a price increase of a certain size and forecast how many are likely to take their business elsewhere. Contextual, current data will also help you consider whether it’s best to spread cost increases across all customers or offer preferred pricing without charging your most loyal and profitable customers more.
Rebalancing the supplier network
Data analytics also becomes crucial when you decide whether and which goods to purchase in bulk or at a lower cost and which lower-cost vendors to choose. For instance, if you purchase larger quantities to receive discounts, your costs of receiving, warehouse management, and storage may increase. If you add warehouse space, you will want to manage procurement and inventory to avoid operating with expensive, unused capacity. To help your workforce adapt to changing business conditions, you may also decide to provide workers with skills development and more powerful tools, or increase staffing to handle spikes in incoming goods and demand. Data intelligence can help plan, define, and target these measures.
If you consider adjustments in your procurement portfolio, you need reliable, comprehensive costing and forecasting data and reporting tools to bring more visibility and intelligence to vendor management. As your supplier ecosystem expands, you may want to use more structured ways to evaluate vendors’ performance and quality along with their value for your company. That requires gathering and collating numerous data points from receiving, procurement, finance, the legal department, and customers. In your evaluations you should also consider the potential supply chain constraints your vendor partners face as they source materials, build facilities, and ship products.
Achieving intelligence and agility
Sixty-seven percent of manufacturing companies saw an increase in demand over the last year, and many of them are also among the 43 percent for which supply chain obstacles caused shortages, adding complexity to addressing customer demand. If yours is one of these businesses, will vendor diversification and cost management strategies help you deliver what customers need? The answer is a qualified “yes”: Rebalancing costs and broadening supplier networks can clear a path to success if you act based on sound decisions and maintain the agility to change course quickly.
Technology deployed and configured to fit your manufacturing business will be instrumental in delivering real-time intelligence together with hands-on visibility and control. Some of the most successful manufacturers rely on a robust, cloud-based, and secure ERP system—like Microsoft Dynamics 365 Finance and Supply Chain Management—as the foundation for managing their business and all its transactions. They make extensive use of the Dynamics 365 capabilities that help them make sense of edge data streams and modeling to manage their supply chains for best results.
When it comes to managing vendors, Dynamics 365 Supply Chain Management can connect to supplier portals and catalogs and enable near real-time visibility of processes and events that involve suppliers. The solution can help you understand and control costs with priority-based supply planning, AI-supported inventory decisions, and automated operations in warehousing and elsewhere. It boosts your agility, for example, by accessing data from manufacturing systems to accelerate production, adjust output parameters, or enable proactive equipment maintenance.
Putting digital supply chain twins and edge computing to work
If you want to bring a higher level of transparency and control to supply chain management, you can use Dynamics 365 Supply Chain Insights—currently available in a preview version—to generate prescriptive insights from AI and address risks before they fully emerge. Supply Chain Insights also enables tiered, granular vendor visibility that allows you to avoid or reduce dependencies that could stand in the way of your customer delivery commitments.
Have you used digital twinning in product engineering or product design collaborations? If so, you may already be a step ahead when you adopt this fast-evolving technology to assist your supply chain management. Some manufacturers we know are most excited about the Supply Chain Insights capability for creating a digital twin of your supply chain. With a digital twin, you can model the potential impact that such conditions as demand changes, procurement optimizations, vendor management decisions, and a variety of shifting supply chain constraints will have on your operations. You can explore the likely outcomes of your possible next steps and choose those with the greatest advantages.
With 5G connectivity spanning the world, many edge computing scenarios have become more practical. That includes tracking connected shipping containers on their way from manufacturers or distributors to your receiving dock. In Dynamics 365, you can keep real-time tabs on inbound voyages and shipping container journeys. By using this capability, you can better control overhead landed costs, set realistic customer expectations, schedule production activities that depend on the incoming shipments, and pivot to alternate suppliers and logistics services to overcome delays.
Here to help
You can thrive, grow, and outperform the competition even as the manufacturing industry grapples with supply chain challenges. Sikich supply chain and manufacturing experts will work with you to realize agile, intelligent supply chain management as a competitive advantage. We can also help you optimize your processes and prepare technology modernizations. Validating the trust invested in us by our clients, Sikich was recently named to Microsoft Dynamics 2022/2023 Inner Circle, the fourth time it has received that level of recognition.
To take a next step, you can:
- Contact our manufacturing and distribution team.
- See how Sikich supports manufacturing and distribution companies.
- Learn about our HEADSTART methodology for fast, transformative ERP deployments.