2022 Supply Chain Outlook
It’s time to reconstruct the supply chain.
By Ken Pinto
I am often asked how long the current supply chain conditions will last. This question assumes we were happy with the way things were. Sure, we were able to build more, but do we really want things to go back to the way they were? Although we made it work, standard practices made proper demand planning difficult, resulting in high costs and backorders.
The standard practice of ordering materials 24 to 48 hours before we need them has done two things: caused distributors to over inventory SKUs and quantities of SKUs, just in case someone orders them, and mistakenly triggered manufacturers to make the wrong products at the wrong time, causing them to hold inventory. Both these scenarios add to the cost of goods and a decrease in production capacity. If we want costs to go down, a different approach is necessary.
Distributor and manufacturer costs can be reduced by providing advance notice of SKUs and “date needed” data. Having this information 30, 60, 90 days ahead of time enables demand planning that ensures a higher level of process efficiency. Did you know that building material distributors, especially lumber buyers, commit to purchases five to seven months ahead of time
Additionally, builders can help take cost out of distributor and manufacturer operations by asking them, “What is it we do that costs you money?” If you ask this question in the right way, you will get an earful. Listen closely. Take interest in helping them increase their profitability. I know it sounds counterintuitive to use your company resources to help someone else make money, but I found this process leads to lower prices, more product availability, and the making of a friend who considers you a preferred customer.
But that’s not what they are used to; more often, they have built a moat and protective wall around themselves to fend off builders’ fiery arrows. We, as builders, often kick and scream when we don’t get what we want. But that’s not how we get lower prices and preference on materials when they come in.
I had been working with Steve, the owner of a one-store building materials wholesaler for some time. Late one afternoon I walked into his store with a purchase order. It was a big one.
His teenage daughter was working at the service counter while the others were in the warehouse. I could tell she was nervous. I helped her help me, telling her where to find things and what to say to the guys in the back. The warehouse guys did exactly what she told them to do.
The order was filled, and she was smiling from ear to ear. She was beaming at her success in handling this order without her dad’s help. Steve was within earshot and heard everything. He was so happy that his daughter had this experience. I later discovered that his daughter struggles with anxiety. A few minutes of coaching his daughter meant so much to him. Trust grew that day.
Use today’s crisis to strengthen relationships with those who control so much of your profitability. Become a better customer. I could have faxed that order to Steve––a simple transaction––but that’s not how relationships are built.
People want to feel something when they go to work. They want to feel like they are contributing. Improve your relations with people in the supply chain and you will gain a competitive advantage. The suppliers who feel connected to you will strive to help you get what you need.
Don’t wait for things to go back to the way they were. Make it better now. We get more of the materials we need when we transform supplier transactions into supplier interactions.
Less focus on the interval; more attention to the things we can improve now that will benefit us for years to come.
Some say the supply chain is made up of raw materials, manufacturers, distributors, wholesalers, subcontractors, and builders––all connected with contracts, where materials flow down the chain, and money flows up the chain.
I say, the supply chain is made of people. Let’s connect with people in a more meaningful way, tear down some walls, build some bridges, and watch the supply chain crisis begin full retreat.
Ken Pinto is the author of How Much Is the Milk?, a practical and actionable roadmap for business leaders to mitigate supply chain issues.