Production costs increase for products and services. There is always opportunity in the problem !
The sharp increase in the purchase costs of raw materials and finished products, as well as the supply cut-off of some comodities have different and competing causes. The proximity in time with of these developments, marks an increasingly discontinuous and turbulent environment, which has put the production systems of many countries under great strain.
What measures can be taken to deal with these global events ? If, due to the magnitude and frequency, it is not possible to completely eliminate the negative effects of such events, every company, even small ones, must take action to better manage its operational levers. To this end, risk assessment is of strategic importance in business management in order to identify the appropriate measures to be taken when a harmful event occurs. It is also good management practice for a SME which, in order to have practical solutions that can be applied quickly, needs to analyse its transformation processes in detail to understand where and how to intervene. This evaluation may start with an analysis of the production process with the aim of identifying critical aspects that may hinder its smooth running. If the goal is to reduce risk, we might consider replacing overseas suppliers with domestic or European companies to reduce the overall cycle time of the supply chain and have more control over our trading partners. Every company must initiate a detailed analysis of its value chain as soon as possible in order to adequately prepare for the appropriate changes, which take a medium to long time. This is the only way our companies will be able to benefit from the strategic policy measures that the various EU countries are applying to remedy the distorting effects of a global economy caused by a lack of economic policy decisions.
In the short term, it is important to look at the production process as a whole, and avoid a partial evaluation that would take us far from the solution. Indeed, ignoring for the sake of simplicity the implications of ISO certification, transformation processes have at least two critical aspects to consider such as the quality of the components used and their integration and specialisation with plant and machinery. The soundness of the supplier is also an important feature, as is having a good supply contract to support the business relationship which binds the parties to the agreed conditions. These aspects have wider implications than just the purchase price, and should be examined before making changes in the transformation process by replacing a component.
If you would like more information on Kenning Consulting's project to improve your SME's supply chain click HERE and you will find useful tips that you can also apply yourself.