Manufacturing: The ‘ground zero’ for U.S. supply chain disruptions
ARTICLE | July 12, 2022
Authored by RSM US LLP
In many respects, manufacturing is ground zero for supply chain disruptions that then ripple out to other sectors across the economy. With China essentially being the world’s primary manufacturer for the last three decades, no U.S. supply chain is immune to the disruptions that have stalled goods at ports in recent years.
These circumstances have forced manufacturers to reassess their capital budgets, determine whether they have the right process and technology in place to accurately forecast demand, and diversify and regionalize their supply chains, says Jason Alexander, RSM US national manufacturing sector leader.
“A lot of organizations that were in paralysis in terms of making decisions, they are now being forced to make those decisions—whether that’s closing a plant or diversifying away from a single supplier,” he says. “This environment is forcing a lot more organizations into action and I think that’s a good thing.”
Manufacturers are far from alone in this. Of companies negatively affected by upstream supply disruptions, 70% said they had found other sources of supply in the United States in the previous 12 months, according to April 2022 RSM US Middle Market Business Index survey questions about supply chains, and 36% found other sources of supply outside of the United States.
Planning has become paramount; Alexander points to an aerospace client that used to have a lead time of six weeks for purchase orders and now asks its customers to place their orders a year in advance. Developing a “plan for every part” has also become table stakes for manufacturers, which are honing backup plans for each component in their supply chains.
This environment is forcing a lot more organizations into action and I think that’s a good thing.
Jason Alexander, RSM US national manufacturing sector leader
A manufacturer’s place within the broader supply chain has a big impact on how they’re able to weather this storm, too. Costs are up throughout the supply chain, and that has an impact on a lot of the smaller suppliers that can’t necessarily commit to larger volumes of product or pay in advance like their larger counterparts may be able to.
“If you’re a smaller manufacturer or a component of another manufacturer’s production, more likely than not, you’re probably going to be the first person on the cutting block,” says Alexander. “Companies are not going to stop supplying their larger suppliers."
That also creates domino effects throughout other parts of the business, he says. If a midsize company is getting squeezed on margins, that can quickly spiral into not being able to pay top dollar for employees, which in turn can translate into not being able to work through backlogs quickly enough.
Using advanced technologies and insights derived from data can help manufacturers figure out how best to pivot in the wake of these challenges. Some areas where companies can use data and technology to guide decisions for the future include:
- Assessing where their customers are and where demand is expected to grow
- Analyzing the costs and benefits of low-margin, high-volume products to determine whether to continue making such products
- Having an enterprise resource planning system in place, and moving that system and its data to the cloud if it isn’t there already
- Reducing material waste and creating more efficient manufacturing schedules
As manufacturers work to balance resiliency, profitability and sustainability, it’s also important to keep the role of technology in perspective. Advanced technologies can help organizations do more with less, but they aren’t a magic wand.
“A lot of times, technology is going to help,” Alexander says. “But if you have a bad process in place, technology won’t fix it.”
Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Jason Alexander and originally appeared on 2022-07-12.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Condley and Company can assist you, please call (325) 677-6251.