Supply Chain Archives - Zebulon Solutions

Why Reshore?

Reshoring seems simple: bring manufacturing back home. The counterargument—offshoring saves money—is also simple, and for decades has been perceived as a winner. Reality lies somewhere in between, as the total cost of ownership needs to be considered, including intangibles.

Conceding for the moment that there is real cost savings from low–cost offshore labor, let’s look at the other factors that influence the total cost of ownership.

Parts and materials—the cost for most products are driven much more by the cost of the bill of materials than the cost of labor. To first order, this is independent of assembly location, but second order effects are common (e.g. sub supply chains, where do the materials and labor for the parts come from?)
Freight—both inbound, for parts and materials, and outbound, to the customer
- This includes the actual transport costs, but also packing, labor at both ends to pack and unpack, overhead for managing, shipping materials, insurance, everything
- And it really depends on mode—surface, sea or air—with the latter being a wildcard that can show up unplanned to deal with intangibles like demand shifts or expedites (see below)
Tariffs—much has been made about this recently, so we won’t dive too deep into this, but remember this can apply at every level of the supply chain
Automation—this is the great equalizer for labor costs, but has a significant ROI aspect that has to be addressed in cost of ownership
Yield, scrap, and other attrition—this is related to quality, which can vary by region, but also ties to the supply chain and even automation (oftentimes the true benefit of automation isn’t labor cost reductions rather consistency and tolerances)
Overhead—especially for lower volume products, this can be the real difference-maker in terms of reshoring vs offshoring. How many people on how many airplanes to set up and manage an offshore supply chain can swamp piece part savings

Intangibles are also important, although tougher to quantify

Patriotism—this is the moose in the room for any discussion of reshoring, the kneejerk reaction of “build it here, in my country/state/ town.” This of course has local merit, but can lead to emotional rather than logical decisions. This isn’t the forum for that aspect, enough said.
Branding—related to patriotism, but more tangible. Does Made in USA (or for that matter Made in Germany) add value to a brand? Not our area of expertise, but valid.
Supply chain—this seems a duplicate from above, but supply chains are called chains for a reason, and how those chains splay out around the globe matters
- In general, the shorter the supply chain the better—a molder on the same campus as the resin compounder (their supplier) and the contract manufacturer (their customer) has a huge advantage over a supply chain where all three are on different continents
Cost of money—there is a real cost to carrying inventory, whether on the water or in warehouses or in WIP on an assembly line.
Agility—the shorter the overall supply chain, the easier it is for a company to be agile, change product mix based on demand shifts, new markets opening, or competition. This is often the strongest argument for reshoring, as a short, domestic supply chain can dramatically improve agility
Management focus—if your CEO is spending all her time on midnight conference calls with a recalcitrant Asian supplier, is that really why she makes the big bucks?
Risks
- IP risk is obvious and real
- Global risks are on people’s minds at the moment, and of course it’s not just pandemics, it can be politics, war, famine, labor unrest or whatever
- Other risks include boring things like getting products through customs (has anyone not had issues at the Port of Long Beach?) or shipping damage
- Yes, insurance can cover some risk, but at a cost, and doesn’t cover intangibles like brand damage

While every product and situation are different, in general a total cost of ownership can (and should!) be modeled. This needs to include ROI, risk, cost of money, and intangibles. Then various solutions can be compared and the tradeoffs weighed in order to allow a data-driven decision. Zebulon Solutions can help both with the modeling of the various options as well as managing the actual transitions to wherever on the planet you choose to manufacture.

Kanban Basics and Diced Tomatoes

Growing companies often struggle with managing their inventory in the following ways:

The production line is down because it’s out of one component
Someone thought they could save money by buying in bulk, and now it takes up way too much space
The company is short on liquid assets yet sitting on excess raw materials for production
A great problem to have, but sales have outpaced the company’s ability to keep inventory on order

Much has been written in the last few decades about efficiently managing inventory. The American automotive industry has optimized its supply chain so that parts are sent to the production line exactly when needed, even going so far as to set up suppliers across the street from their factories. This isn’t realistic for most companies, but inventory management can be applied to small companies or even one’s pantry.

One of the tasks Zebulon Solutions helps companies manage is their raw material, to ensure they have enough materials to meet their customers’ demand yet don’t have too much money tied up in materials. This is frequently accomplished through a visual management system. My own pantry has benefited from setting up such a system to limit over-buying one item, say boxes of chicken stock, while running out of diced tomatoes.

I didn’t invent this system. The original concept was developed in the 1940s by an industrial engineer and businessman in Japan working for Toyota, Mr. Taiichi Ohno. He invented a simple planning system to optimally manage work and inventory at every stage throughout production, which became known as “Kanban.” Over the years, this has evolved into production lines using bins for visual management, process mapping, and taken into the software development world by David Anderson[1]. As for my pantry, I mostly use a visual management system for my raw material with predetermined reorder points, reorder quantities, known lead times, and estimated usage. Using a raw material example from my pantry, cans of diced tomatoes, we can understand how this could be translated to a production environment.

Visual planning or visual management – a means of quickly looking at something to determine what is missing, out of place, or needs to move. In my pantry, I can easily get a visual snapshot of what needs to be purchased and help me not overbuy when there is a good sale, or global pandemic, going on.

Raw material – in this example, it’s the diced tomatoes. In industry, it could be anything from bolts to circuit boards, plastic resin to fans. Whatever that factory is using to fabricate or assemble their products. Since diced tomatoes come in multiple sizes and my usage is inconsistent throughout the year (making soups in the winter), it will help us look at how this can be applied in a manufacturing setting. A visual planning system doesn’t require consistent usage.

Reorder point – the point of consumption where the raw material needs to be replenished. This triggers the buyer to order more based upon lead time. Typically, this isn’t set to zero, because that would cause the production line (or my recipes) to come to a halt while the raw material is ordered and shipped. Since tomatoes can be purchased in multiple sizes, the target inventory is to have no more than 4 large cans (28oz) and 8 small cans (14.5oz). This is slightly more than what is consumed in a week, but it also allows for the fluctuation in usage without incurring an additional trip to the grocery store (or an expedite fee in industry). When 6 small cans or 2 large cans are consumed, diced tomatoes are added to the shopping list.

Reorder quantity – the amount of raw material that is purchased when the reorder point is triggered. In the example of diced tomatoes, “6” is the reorder quantity of the smaller cans and “2” is the reorder quantity for the larger cans. In industry, the person who notices the Reorder Point is rarely the same person who places the order for the raw material. The person placing the order would look up the Reorder Quantity for each raw material and place the order with the supplier.

Lead time – the time between when a raw material is put on order and when it ships. Using the example of diced tomatoes, I grocery shop once every 7-10 days. The reorder point is established based upon how many cans would be consumed in a worst-case scenario, 10 days. If a recipe emergency occurred (oops, Auntie is coming over for dinner, what now?) and the demand for diced tomatoes suddenly increased (making the tomato-based soup she loves), I could process an expedited order and make an unplanned trip to the grocery store. In industry, a phone call to the raw material supplier could shorten lead time and sometimes a fee is levied on the unit price for the expedited delivery.

A second consideration is lead time increase. Especially relevant recently, where certain items have become suddenly unavailable, at the grocery store. What happens when the lead time increases from 10 days to 14 or even 140? This type of increase in lead time is not uncommon in industry where capacitors, for example, increase from being readily available to 52 or 86 weeks of lead time due to a major cellphone manufacturer placing ‘intent to purchase’ orders in the supply chain. For my tomatoes, it would be prudent to increase the reorder point (buy cans earlier) or the reorder quantity (buy more cans) or perhaps both if there is a substantial disruption to the supply chain, like we’ve seen recently.

While I’ve used tomatoes in my example, Kanban can apply to any inventoried item, whether in industry or a household, that is regularly consumed and purchased. A visual management system will help you keep a cool head when rumors of material shortages or unavailability occur. If you buy based on your actual usage, lead time, and reorder points, you should be able to prevent running out of items while maximizing your liquid assets….and your trips to the grocery store might be a little less chaotic.

[1] https://www.digite.com/kanban/what-is-kanban/

How to virtually qualify a supplier

In my 20+ years working in supply chain, I’ve visited hundreds of suppliers in multiple states and countries. Qualifying suppliers is essential both in building a relationship with the supplier and ensuring that customers’ needs are met. But what happens when global travel restrictions shut down trips to qualify a new supplier? Like many other jobs in the work-from-home era, qualifying a supplier has now become dependent on virtual assessment.

The first step for qualifying a new supplier is to do your research. You’ll want to check the reputation and qualifications of the supplier through both personal references and any online presence. When I am looking for a new supplier, I reach out to my personal contacts for recommendations. From there, I scour the websites of potential suppliers for videos and substantiated information that can prove the supplier’s worth

After researching the company, I’ll send out a request for information (RFI) to the suppliers I’m interested in for a more thorough vetting. Exactly what you put in an RFI depends on the needs of your company and product, but some top priorities to investigate include:

What does their customer base look like? How many customers they have for each facility will give you an idea of whether they have the experience for your project.
Ask what type of industries they primarily focus manufacturing on. Is it similar enough for your products?
How many employees do they have and what will be the make-up of their new product introduction (NPI) team? These NPI employees will be the ones responsible for your product, so you want an idea of what to expect.
Do they offer turnkey solutions? Some companies prefer to have more control over their material and IP. A hybrid option would be to have some material provided by the supplier, some by the company. Or full turnkey, meaning the company would rather have all material purchased and monitored in one place.
Request sample documentation. Ask for quality reports, first article inspection (FAI) reports, and relevant ISO compliance certifications and expiration dates.
Ask for customer references and D&B numbers to check on supplier reliability and financial status, to validate the information the supplier is giving you.

An RFI is standard in any supplier qualification but without being able to do an onsite visit of the facility in person, there are some additional request and questions to consider:

Ask to set up a virtual video tour of the facility. This is most likely new to some suppliers, so they may not have this as protocol but asking to set up some sort of walk around on a video call can aid in seeing what is on their manufacturing floor. Here’s a good example.
If you can’t get a full video tour, ask to see current photos or a quick video of their production floor. You want to get an idea of the size of the facility and how much of that real estate is taken up.

Be specific, both so you can both focus on what’s unique about your products and needs, but also to get past any tendency to just show you their stock marketing photos. For example, don’t just ask for Statistical Process Control (SPC) charts, ask for a photo of where they are posted.
Find out if the supplier has the capabilities to work with customers speaking a different language. If the supplier or customer is in a different country, their first language may not be English. Find out what procedures are in place for translations and translators. If they’re in a different time zone, make sure there is a time that works for both parties for any conference calls or virtual meetings.

Although Zebulon Solutions has worked with suppliers all around the world, it hasn’t always been possible to visit each location in person for other, boring reasons. It can be done. So, while today’s travel restrictions are certainly new and daunting, it isn’t impossible to find ways to work with new suppliers without in-person meetings. Physically seeing a facility is almost always preferable, but we’re fortunate that technology can make any gaps a little smaller.

This is new to all of us so do what you can to get the information you need, ask lots of questions, be patient with suppliers as they navigate their new roles, and maintain your social distancing as best you can.

The Supply Chain of Toilet Paper

Let’s talk toilet paper. We all know there’s a shortage, but where does toilet paper come from? What is its supply chain and how is it made? As a company full of supply chain and engineering professionals with spare time on our hands for a change, we want to know.

Like every product, it starts with raw materials. Toilet paper is made from wood pulp, along with water, chemicals for extracting, fiber and bleach. Yep, it’s that simple, trees. Which are a very renewable resource, so that’s good too. Both softwood and hardwood trees are used primarily from the USA, Canada or Russia. Also good. The pulp is processed, sprayed onto wire mesh to dry and then scraped off, rolled, cut into long strips, squared and finally cut to sized rolls.

Where are these paper manufacturers? There are several giant paper manufacturers in the USA. The majority of our toilet paper manufacturing is right here in the USA, in towns like Clatskanie, OR and Mehoopany, PA. More goodness. Of course there is likely a long string of warehouses and distributors between the factory and your neighborhood grocery store, which is undoubtedly being compressed right now.

Note, contrary to what you might have read on the Internet, this won’t actually lead to clear cutting of forests or similar devastation. Toilet paper doesn’t fluctuate in demand whether it cold or hot outside, or if it’s Christmas or Valentine’s day. It’s a stable product. Remember, the end use of toilet paper hasn’t gone up (hey maybe it’s gone down as people use fewer squares), it’s just that the inventory has shifted from warehouses and stores to people’s closets.

This will, however, lead to the bullwhip effect, where at the end demand will actually drop and there will be a glut. But that’s just how supply chain works.

And hey, maybe even a few of those excess rolls will end up back in trees. Ironic, or what?