Year 2008 was a distress year for most of the industry with widespread closure and downsizing by everybody and anybody, however 2009 brought much needed hope of revival and finally numbers are started to look good in 2010. But so much fluctuation in demand has led to very serious issues in supply chain of every organization.
While buyers were answering issues relating to overcapacity and cost going haywire due to poor numbers off take and adjusting amortization costs in 2008 and 2009, now some interesting questions are being asked by same buyers to their respective suppliers regarding capacity augmentation. The production numbers are coming back with exponential growth and frankly not every supplier is ready to invest back in capacity increase after having downsizing only last year.
There are many issues which is now becoming problem for every supply chain executive after recession:
1. Meeting the increased demand with current capacities.
The most immediate need of the hour for any supply chain executive is to make sure that manufacturing line doesn’t stop. Production numbers fluctuation only add to problem and the problem become severe when the capacity at your supplier end is low w.r.t requirement and developing new sources is long and difficult process.
The answer to the situation is to start proactively analysing the installed capacity at supplier end and closely monitoring the inventory level at supplier end.
Installed capacity can be assessed based on many factors which include installed infrastructure, installed technology and overall takt time of the process. Once the study is done of the installed infrastructure and technology, ways need to be found out to decrease takt time of the process.
Also another solution to manage the issue is to build up the inventory levels at supplier end. The inventory level could range from couple of days to week depending upon the size of the part and space availability at the supplier end. The inventory planning also includes sufficient inventory of raw material and bought of parts.
2. Complex expansion projects
Capacity augmentation was on high list for everybody till 2007. However the complete lists of expansion projects were thrown in 2008. Often the projects with long lead time and complex technology requirement were also put on hold or were scrapped. Now to kick start same projects in order to meet the current demand is a very critical issue to ever supply chain executive.
3. Daily fight for survival
Imagine your supplier can only produce 1000 parts and daily requirement is of 1200 nos. Under capacity situation like these is a nightmare for any supply chain executive. This leads to daily fight for survival which includes day long follow-up with supplier and often night long vigil at his end to ensure smooth supplies.
4. Costing issues
Recession bought a much needed relief for supply chain executive in terms of supplier management as not many were coming up with cost increase proposal due to fear of losing their already reduced business. Also globally commodities prices were at their all time lows thus giving buyers much needed relief and helped them achieve their cost reduction targets however lower off take also meant that amortization cost increased dramatically. But now the things have changed completely. Commodities prices are at upswing again, suppliers have become aggressive in terms of posturing specially in areas where they know they are the only source. Also push by many industries of stock build-up to meet demand and pushing future expansion projects fast is only adding to the overall cost and managing these issues are becoming increasingly difficult for them.
5. Manpower issues
Recession has forced many organizations to downsize aggressively which included manpower downsizing also. Now to manage increased capacity the requirement also is to have skilled manpower. That’s the reason recruiting has picked up again in the economy. However it’s not easy to hire skilled managers overnight to manage this situation. This only adds to the problem in the current scenario.
Another issue relating to manpower is of remunerations There were minimal or no hike in pay during the last couple of year due to recession but now that numbers have started to look upwards organizations needs to handle the pay issue very carefully to retain their best manpower and supply chain executive needs to monitor that respective pay revision do take place at their supplier end so that workforce remain motivated enough to handle the current scenario.
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