Is your supplier base poised and ready?

Although ripples from COVID-19 continue to permeate the manufacturing industry, heavy equipment manufacturers have reason to be optimistic. New data from the Institute for Supply Management (ISM) shows that the overall economy has been expanding for more than a year, and all of the six biggest manufacturing industries, including fabricated metal products, registered moderate to strong upticks.

Manufacturing growth is good, of course, but a recent Fox Business story reported – and the June ISM report reiterated – that the manufacturing rebound has suppliers struggling to keep up.

This concern should prompt equipment manufacturers to reevaluate whether their supplier base is ready to act quickly to fill new orders.

Assessing supplier capacity and resiliency
It’s likely manufacturers who make this assessment will discover that at least some of their tier-one suppliers are experiencing COVID-induced challenges like materials shortages, materials price hikes and labor shortages that will make it hard for them to respond to increased customer demand within project scope. When this is the case, it may be advantageous for OEMs to establish relationships with new supplier-partners that are better positioned to guard against shortfalls or to consolidate their supply base, leaning on companies that have proven experience and are poised to handle added capacity.

Before being confronted with a notice that a supplier will not be able to fill an order as expected, OEMs can ask these questions to evaluate their suppliers’ resiliency and to assess the fit of potential new supplier-partners:

1. Does the supplier have a diversified customer base? Suppliers that receive a high percentage of business from a single OEM may tend to prioritize that work, putting other projects at risk. If the large customer’s business drops off significantly, the supplier may have difficulty performing other work – or even remaining in business. In their audits of current or new supplier-partners, OEMs should ask the percentages of business divided among customers.

2. Does the supplier have capacity to respond to and assimilate new work? Heavy equipment fabricators that are prepared to take on as much as $1 million or even $2 million in new work with little warning likely are those that have developed and are pursuing a defined growth strategy. These companies will have clarified the industries that are best suited to benefit from their core competencies and will have existing processes that can be quickly applied to respond to and capably manage relevant business opportunities.

3. Can the supplier demonstrate a commitment to a “no surprises” relationship? For the time being, raw materials shortages are a fact of life in the heavy fabrication industry. However, reliable supplier-partners will have forecasting expertise and monitoring and management processes in place to foresee potential supply chain issues and address them early.

These supplier-partners also will maintain supply chain resiliency plans that minimize the risk of failing to meet the manufacturer’s schedule. As a best practice, a supplier-partner should have two or more strong relationships with reputable, well-known suppliers across all commodities and will do enough business in each of those commodities to garner attention.

In the rarer instances of a delay in receiving or an inability to get materials, a preferred supplier should be one that would immediately open internal communications with customer service, production and plant managers to identify potential options. The supplier-partner also should give the customer a full view into the issue, explaining the challenge and recommending solutions.

4. Can the supplier get necessary certifications in time? If a prospective supplier-partner does not already have a heavy equipment manufacturer’s required industry- or manufacturer-specific certifications, it doesn’t need to kill the deal. Experienced supplier-partners previously will have secured numerous environmental, safety and ISO certifications. Following their existing, customary processes will streamline their ability to gain any necessary additional certifications and meet individualized manufacturer specifications.

5. Is the supplier able and willing to make investments in people, processes and technology? For the benefit of the equipment manufacturing ecosystem, OEMs’ supplier-partners should be reinvesting in tools and teams that support efficiency, competitiveness and future growth. Miller Fabrication Solutions, for example, invested in a multi-million-dollar flex manufacturing machining gantry system that shrinks customers’ setup costs, reduced the need to run certain parts on multiple pieces of equipment and expanded the size of product that could be produced for OEMs.

Prospective supplier-partners also should be able to point to investments in project management personnel and technologies that streamline onboarding, launching and managing new projects and project revisions in a timely manner. Depending on the OEM’s need, the supplier-partner should further demonstrate flexibility and a collaborative mindset, up to and including a willingness and ability to create efficiencies by moving the manufacturers’ equipment on site and serving as its manufacturing floor.

Materials shortages are predicted to persist for months to come. Evaluating their tier-one suppliers and adding new supplier-partner relationships where increased capacity and supply chain resiliency are needed to meet anticipated demand will help OEMs manage through the uncertainty.

About the author: Paul Sorek is director of business processes at Miller Fabrication Solutions, a metal fabrication supplier-partner for global equipment manufacturers across construction, forestry, transportation, rail, oil and gas and other heavy industries. Sorek oversees the departments that support and add value to the company’s operations, including automation, engineering, process development and quality control.