CMTC Q&A: Jim Watson on Supply Chain Disruption

While reshoring has long been discussed in the manufacturing industry, there has been a surge of interest since the pandemic's onset.

CompanyWeek recently discussed the impact of COVID-19 on manufacturing supply chains with California Manufacturing Technology Consulting (CMTC) CEO Jim Watson.

CompanyWeek: How has COVID-19 affected supply chains for manufacturers?

Jim Watson: About 80 percent of manufacturers have been financially impacted by the COVID-19 supply chain disruption. Of that, 47 percent are actively seeking domestic suppliers.

Many manufacturers have relied on global supply chains for materials. So, when COVID-19 hit, many factories slowed or shut down. Additionally, with transportation disruptions it became extremely difficult for manufacturers to access the raw materials needed to make their products. In some cases materials dried up completely.

CW: How can manufacturers fill voids in their supply chain?

JW: As manufacturers look for ways to reduce their supply chain risks, determining second source suppliers, and reshoring their supply chains cost alignment is a critical factor. While I believe there will always be a price point differential with global, offshore sourcing, there are a multitude of advantages to having a supply chain that’s in close proximity to the manufacturer. If we're confronted with another global issue in the future, we may again experience supply chain disruptions. Since global supply chains only exacerbates the problem, supply chain reshoring can help minimize these risks and reduce delivery disruptions for a manufacturer

CW: What does that look like?

JW: To remain competitive, manufacturers will need to lean out their operations to remove waste and lower their overall product cost. In addition, manufacturers will need to increase employee training to improve skill sets and continue to make capital investments to improve productivity in manufacturing to lower costs. While manufacturers may not exactly meet foreign pricing, they can certainly become competitive. And from there, the advantages of local manufacturing will kick in.

It’s important to understand the difference between the supplier’s cost; the purchase price versus the total cost of ownership. There are many hidden costs of importing products that include transportation, management, tariffs, long lead times, and carrying costs for additional. inventory. Using a tool called the Total Cost of Ownership Estimator, can show that, although foreign labor costs are low, there are the other incremental costs, i.e. transportation, quality, shipping delays, tariffs, and inventories that add to the overall cost as well. If you put that all together, local sourcing can become an affordable option.

CW: Any other comments, Jim?

JW: Now is the time to act. Lean out your operation, invest in your employees, and invest in your factories. Reach out to local manufacturers who are importing products you can make, and promote your case for shifting to local production.

And CMTC and the other Hollings Manufacturing Extension Partnership (MEP) centers can help. Whether it's supply chain optimization or supplier scouting and matching, we're here to assist manufacturers in improving their operations and growing their businesses. So, don' hesitate to contact us.