Dynamics Matters Podcast: Ep 56 - How to solve the problem of a bulging order book

Welcome everyone to the HSO Dynamics matters podcast.

Your regular sonic dive into the world of Microsoft technology related matters and much more besides.

I’m your host Michael Lonnon, and for today’s episode I shipped in Henry Anson, Managing Director from The Manufacturer, one of the UKs foremost leaders in Manufacturing thought leadership, for a chin wag.

We talk today’s challenges in orderbook fulfilment, the change from Just In Time to just in case model, and using data to create a more efficient supply chain.

So, grab a brew, sit back, relax, and enjoy the show.

Michael Lonnon

We’re talking about supply chain management and the state of things today, and how things like COVID and the war in Ukraine and other factors is impacting the supply chain for manufacturers and how they can manage demand. From your opinion, and from what you’ve seen, what are the biggest challenges that manufacturers are facing?

Henry Anson

Manufacturers across the supply chain side are facing a myriad of problems at the moment and arguably the progress of the last 20 years of global supply chains has come to an end or is it coming to an end? Most manufacturers that I speak to have got bulging order books and are struggling to fulfil those orders, and it’s across all sectors. It’s not just in automation where there’s a well-documented chip shortage, it’s across all sectors of manufacturing. The problem is raw materials and component parts, and they are struggling to get orders out of the factory gates at the moment.

Michael Lonnon

So, there’s demand, and they’ve got orders coming through, they’re just not able to fulfil them.

Henry Anson

Yeah, absolutely. I was talking to a very senior manufacturer the other day, and he coined the phrase which I repeated about 58 times and now use as my own is that it moved from a just in time model to a just in case model, which is a completely different and rethink on the traditional way of supply chains, basically where you have one in one out, and now stockpiling, which obviously puts big demands on cash flow and things like that. There’s had to be a radical rethink around that whole just in time model.

Michael Lonnon

Traditionally, it’s been trying to reduce costs and having very limited supplies or excess in warehouses and all sorts of things trying to keep the cost down, but you’re saying that actually, now the difficulty is that they can’t get the supplies so they’re trying to fill up warehouses so they can deal with just in time?

Henry Anson

Yeah, absolutely and it puts different financial pressures on the business, obviously, but yes, there’s been a marked change in the last six months in that sort of just in time attitude a marked change. Just going back onto the global supply chain, we’re starting to see a definite movement, and people have been talking about it for years, but reshoring and nearshoring, building security around the supply chain, that visibility, and that’s something I’d like to discuss in a moment, actually, because obviously, that’s where tech can play a big part. Having visibility on where the bits that you need are in your supply chain is absolutely critical and the closer, they are to home, the better. So potentially, there’s an opportunity for UK manufacturing to re-shore some of the bits that we think we’ve lost forever, which is quite exciting, but it’s born out of necessity, rather than a nice to have.

Michael Lonnon

So, the longer the supply chain in terms of far-shoring is just because of the cost and complexity of getting the raw materials themselves and the things that you need and the components you need. Is the cost is just becoming unsustainable, would you say?

Henry Anson

The cost, but also its the risk, actually, it’s not necessarily the cost, again, I think the days of buying component parts, which are 0.01p cheaper in the far east than they are here and the concern around resilience and reliability is overriding that it’s got to be the cheapest, available option. So, it’s not just a cost thing at all, it’s that reliability of that supply chain.

Michael Lonnon

Are most manufacturers aware of this, are they trying to do something about it, do they get the differences, are they addressing it do you see?

Henry Anson

The supply chain crisis is probably slightly over overdramatising it, but it is a real here and now issue for pretty much every manufacturer we speak to and there’s no anticipation that it is going to ease within the next 12 months. I think we’re looking at least this time next year before some of these issues have resolved themselves. There are no quick fixes because it’s a massive issue. Of course, it also plays into the whole sustainability piece, which is now a main board agenda item for pretty much every manufacturer in the UK. So again, it’s that traceability, there’s business necessity, but also there’s that traceability of where these parts or raw materials are coming from where they’ve been sourced is it ethical, and obviously the carbon footprint. There’s a number of factors coming in to play here, which are putting these extended supply chains under the microscope.

Michael Lonnon

So, it’s traceability as well as visibility. So not just being able to see where the things are in your supply chains but where they come from?

Henry Anson

You don’t want materials being mined by children in Africa, so yes, it’s that traceability and visibility, and it’s up and down the supply chain. In a lot of cases, it’s the larger organisations having a pretty forensic look at their tier one, tier two, tier three, tier four suppliers, about where they’re sourcing. It’s not just a nice to do to try and reduce carbon footprint, it’s being enforced by these big public companies, who are responsible to their shareholders and have made some very bold statements about the direction of travel they’re on.

Michael Lonnon

So how can manufacturers wanting to get a better handle on their supply chain, how can they improve visibility? Where does technology fit in that kind of scenario?

Henry Anson

I think technologies is absolutely key to it and it’s about some sort of level of understanding up and down the supply chain, that there’s going to be a uniform way of measuring, tracking, tracing, and that sort of stuff. We are hearing some of the larger organisations are helping their tier two, tier three suppliers with technology in order to get a standard platform through technology. Clearly, I’m talking to a technology driven company, but that is the answer.

Michael Lonnon

So, manufacturers are investing in technology to help increase visibility, but they’re also passing it down through the supply chain, because they understand you can’t increase visibility without a connected supply chain as you are only ever seeing some of the parts.

Henry Anson

100%. Absolutely and that will come to bite them if they don’t do that. Somewhere further down the supply chain, something goes wrong and that tiny little part, that widget means you can’t fulfil the big order. So yeah, it’s down through the supply chain.

Michael Lonnon

I’m guessing as always as seems to be in all the conversations I have, data is a significant part of creating visibility or gaining that visibility and better management of it.

Henry Anson

You don’t know what you can’t measure. I run a lot of focus groups for manufacturers and what’s become quite apparent is that there’s a real focus on data but even some of the larger organisations I was referring to have a very confused data strategy, if they have a data strategy at all. I think the assumption that the larger companies have a defined data strategy is not right and a lot are still struggling with governance ownerships and what we think are fairly basic issues, but they’re still trying to get that defined data strategy in place that they can then roll down through their organisation and into their supply chain.

Michael Lonnon

Where are you seeing the data strategy or the responsibilities around data management and its strategy sit, is it within IT, is it within business side of manufacturing?

Henry Anson

Largely more in business, to be honest, so it’s those change agents, those directors of digital transformation who are looking at the whole business rather than just isolated parts of it. There is no point undertaking a large digitalization strategy, if you haven’t got your data strategy sorted, basically say it’s always the first point on that digitalization journey that they have to get sorted. So, it tends to be a collective, I would say, but probably headed up by that person with the digital transformation responsibility.

Michael Lonnon

Would you say before organisations or manufacturers can start to understand and see and gain visibility of their supply chain, really, they’ve got to get data in hand first or get a good foundation of data management and handling before they can start to do that.

Henry Anson

100%. Again, going back to the you don’t know what you can’t measure, so yeah, absolutely that has to be the start point.

Michael Lonnon

What’s the danger then? I guess most manufacturers are suffering in some way, shape or form from inflationary costs, COVID, the war in Ukraine and so far, but what if they do nothing, what if they just sit there and try and ride it out, can they ride it out?

Henry Anson

No, I don’t think they can. I think there’s an acceptance of pretty much everyone we’re speaking to that something has to be done and done pretty damn quick. The one thing I haven’t discussed, of course, is that I think we’re running at nearly 10% inflation in the UK at the moment and it’s very well documented what’s going on in energy prices, someone’s got to pay for this at some point. I’m not yet hearing my community screaming and shouting about it, but 10% is a very significant figure. A lot of businesses operate on relatively low margins, so again, that’s going to put more pressure on that supply chain visibility and reliability as well. At some point these costs will be passed on. They’ll have to be.

Michael Lonnon

How long do you think this is going to last? I think you mentioned for 12 to 18 months you don’t see things calming down too much.

Henry Anson

Certainly, on the supply chain side of things I don’t think they will. I am no economists, but I think there’s an expectation that inflation will start to fall towards the back end of the year. So maybe that’s a six-month piece, but it’s still going to be higher than we’re used to, the sort of standard ish 2%, maybe drops back to 4 or 5%, but there’s still fairly significant costs that will need to be factored into the manufacturing operation.

Michael Lonnon

Where have you seen manufacturers change?

Henry Anson

I haven’t really yet seen an exemplar, what I can see is a lot of work in progress. No one’s got this cracked, as far as I’m concerned, or as far as I’ve seen, I’m sure there are some fantastic examples of companies out there, but I haven’t really listened, heard or spoken to anybody about how successful they’ve done it, it’s work in progress. This is a journey, but I don’t think anyone I’ve spoken to can put their hand up and say, I’ve got this nailed.

Michael Lonnon

A thought that comes to mind, because it’s a work in progress, because it’s a journey and because as you say, not many manufacturers have been able to crack this challenge just yet, do manufacturers tend to learn off of each other is there much give and take as in, one learns one thing passes it onto another.

Henry Anson

One of the benefits of COVID and there have been some in terms of the manufacturing sector, having a look at things like digitalization there’s definitely a greater spirit of collaboration. We host an awful lot of activities that are cross sector and to be honest, they get as much learning from each other as they do from the sponsors, academics, or the speakers. So, it’s, where are you, what are you doing, how and what mistakes have you made and it’s extraordinary. You look at completely different sectors, food and beverage gets automated, but there is a lot of learning that can be shared across those two sectors, despite the fact there’s a very different process involved in manufacturing. That cross-sector learning does seem to be much greater and there’s a spirit of collaboration, and that was pre COVID, for sure. I think that was probably engendered by the extraordinary efforts around the ventilator challenge, which although I don’t mind saying publicly the government completely messed up, actually the sector responded to it in an absolutely fantastic manner.

Summary

For years manufacturers have been stripping cost out of the supply chain to maintain their fine profit margins. This has meant things like keeping stock holdings to the very minimum and operating in a just in time model of one in one out.

But a range of macro factors has changed all this. Leading to bulging order books but without the parts to fulfil orders in good time.

Manufacturers are now operating on a just in case basis. And the days of importing parts from overseas because they are a penny cheaper are gone.

And what Henry has seen is that it’s only with improved visibility and traceability within the supply chain, can today’s manufacturers keep the flow of goods moving. And good data management is a key part to this.

I hope you enjoyed this episode. For more manufacturing insights Google The Manufacturer. And until next time, take care of yourselves.