Contingency Planning: Ten Good Ways to Keep a Supply Chain from Going Bad

Recent articles on supply chain contingency planning have focused on the financial impact of parts shortages on supply chains in general and on OEM manufacturing processes in particular. The tsunami that hit Japan last year and drenched the global auto manufacturing industry is a good example.

Not much has been said about supply chain contingency planning for maintenance parts, however, and it can have as much of a financial impact on end-users. There are an estimated twelve units of material handling equipment at an end-user’s site for every piece of equipment manufactured. As a result, the shortage of one part used in a maintenance process could have a significant effect on a large population of end-users. The major consequences include excessive equipment downtime and poor operational performance. This can increase a company’s Total Ownership Cost [TOC] and decrease its ability to deliver products or services to its customers.

An OEM’s market success is driven by the price and quality of its product, as well as the support it provides customers to ensure product value. An OEM is ultimately accountable for any maintenance parts shortages, regardless if it delivers parts directly to end-users, employs a dealer network to supply those parts or uses its suppliers to deliver parts through their distribution channels.

Also remember that even products that haven’t been made for 10 or 15 years also require OEM support.

With all that said, these are my 10 top ways to deal with the scary events that can disrupt a maintenance parts supply chain:

1. Increase “safety stock”
This has always been the OEM’s favorite form of disruption risk mitigation. The solution is very simple; get “burnt” once with a shortage, buy a bit extra; get “burnt” a second time, buy lots more. This often works, but it is expensive and can lead to future obsolescence and write-offs. This strategy can not only be implemented for finished parts, but also for long-lead-time raw materials.

2. Near-sourcing
Deal with suppliers that are physically close to the OEM’s parts distribution. This initiative reduces delivery lead times and thus reduces the amount of time to prime the supply chain once a disruption is resolved. Also, near-sourcing allows the OEM to physically visit the sites of their suppliers and see what is happening in their facility.

3. Supplier auditing
Perform a full risk assessment of suppliers including their business continuity plans, geopolitical exposures and their processes. An example is to recognize that a supplier “has its act together” when it employs the Supply Council Operations Reference model, or SCOR, which uses standardized language, metrics and business practices to manage the supply chain. Audits do not have to be performed for all suppliers, but at least for those suppliers that provide mission critical parts for the end-users.

4. Develop repair schemas for non-repairable classified parts
Many items that were originally classified as non-repairable in a maintenance manual can be physically repaired, but the economics may not justify it. If disruptions occur, the non-repairable component may not be available, but the piece parts to make a repair may be available. An OEM must be proactive for this to work.