Supply Chain Strategies to Maximize Sales and Profits

Supply Chains and the Pandemic

A major lesson from the Pandemic is that supply chain management is an art and a science. On the surface it seems like Just in Time Management principles have faltered. However, a solid argue can be made that a selective use of JIT is the root of the issue.

When W. Edwards Deming created his production system, it was to eliminate waste in the Mass Production manufacturing process. Specifically, Deming observed that the desire to optimize labor created waste in the form of large inventories and bottlenecks.

Deming then designed a new process that would reduce costs in all aspects of manufacturing, including labor costs, material costs and finished goods inventory. This was adopted by Toyota and grew into the lean production system that has been globally adopted.

The Lean Production system process includes several core tenets designed to both increase efficiency and reduce risk.  The pandemic showed the importance of adopting the entire Lean Production System.

The Role of the Pandemic Response

While it was impossible to predict the fast market rebound and great resignation, it was not difficult to see supply chain weaknesses formed by the selective application of Lean Production principles. 

The COVID Pandemic triggered unforeseen business conditions. And while it was a trigger, it wasn’t the root cause of the current market.  Instead, decades of global supply chain optimization without risk reduction created the current supply chain shortages. The Pandemic simply created the conditions that created the supply chain crisis.

It nearly universal labor and production to prepare for a severe economic downturn that triggered the current supply shortages.  And while it’s easy to look back and say that industry over-reacted, industry should not be judged harshly for these decisions. 

When faced with an economic downturn triggered by an emerging global pandemic, companies cut orders and staffing to save their businesses. And for the most part, they were successful at keeping their business afloat.

Respect for People

A core principle to the Lean Production process is “Respect for People”.  Toyota identified early in their adoption of Lean Production, that people were key to success. For an empowered and loyal workforce creates the stability needed for supply chain success.

In today’s business climate, it is widely accepted that anyone is expendable. And this sentiment is shared by employees and employers alike. The company cultures that grew out of this point of view has backfired profoundly on global labor markets.

Reduced manufacturing with resulting layoffs was a natural response to the COVID-19 Pandemic. What was unexpected was the number of employees who didn’t return to their jobs when layoffs ended.  And while the causes of the Great Resignation are complex, one undeniable reality is that the Pandemic shifted worker’s priorities.    

Companies who have thrived during the Great Resignation have done so by creating a positive work environment where team members with a strong respect for people.

Supply Chain Distance Kills

A key to lean production is to shorten the supply chain by building product in close proximity to your customers. This makes it easier for a just in time manufacturing supplier to adapt to market disruptions.

And, while some companies such as Toyota have built assembly plants and sought suppliers near their global customers, many companies have done the reverse. So instead of a short supply chain with supply close to the point of production, a lot of companies have built long supply chains with overseas suppliers. 

These companies optimized their supply chains by reducing inventory levels by eliminating excess inventory. These distribution channels, with a just in time inventory process created long and exposed supply chains that have been vulnerable to supply shortages.

Suppliers as Business Partners

Sometimes cheaper isn’t better. The lean product System treats suppliers as business partners.  This helps ensure that everyone is invested in solving problems instead of shifting responsibility to one party. This provides the funding and cooperation for creative solutions to solve supply chain issues.

There are companies who continue to use negotiation and volume to squeeze suppliers harder than they should.  This allows less funding for suppliers to address challenges and makes the customer with the “best deal” the lowest priority when supplies are short.

Not Everything was Negative

Shortages related to the Pandemic response have had at least contributed to inflation, deferred purchases, and consumer frustration. But not everything that happened was negative.

Companies Stayed Open

The first and most important consideration is that most companies managed to keep their doors open. So, while labor shortages, supply chain disruptions and lost sales have been frustrating, companies were able to adjust their cost structure to keep their businesses viable.

Innovation Soared

Being stared down by a global pandemic and a seemingly inevitable market meltdown pushed a lot of companies to try new ideas.  In some cases, this accelerated or created new business approaches. Some examples include:

  • Toyota has announced some efficiency improvements that will allow them to shorten their post pandemic target dealer days’ supply to 30 days.
  • Several automakers are exploring a move to “build to order” vehicles instead of the traditional “car on the lot” approach to selling.
  •  eCommerce expanded and traditional distributors began to push more product online. 
  • Several car companies have announced digital sales initiatives to make it easier for consumers to buy new cars in an online environment.
  • Many companies are embracing remote work and new employee onboarding processes to help with employee retention.
  • Dealers and automakers are rethinking fixed Ops. Services such as a mobile service department, touchless delivery, and other products and services are being added.

Lessons Learned

The global pandemic is still ongoing and there are additional lessons that will come out of it. However, there are some improvement opportunities that have already come forth.

  • Stress Test the Supply Chain: The fact that supply shortages have been extensive and unexpected showed some weaknesses in the supply chain that need to be further understood.
  • People Matter – A lot of companies have seen that employees are less replaceable than previously thought. This will likely inspire human resources changes in how people are hired and retained
  • Source Locally – Long, multi-national supply chains only work when there is a high level of global stability. Sourcing locally can be more expensive, but it reduces the risk of long supply chains.

About 3NG Consulting

3NG Consulting is an OE Fixed Operations consulting company focused on helping automakers, dealers and suppliers achieve their maximum potential. Our services focus on creative approaches to expand strategic sales growth.

Picture of Karl Krug

Karl Krug

Karl Krug is the Chief Strategy Officer of 3NG Consulting and specializes in automotive parts and service solutions and marketing. 

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