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.

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.”