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Supply Chain The Art of Vendor Selection N
either Alibaba nor DigiKey provide a supply chain strate- gy. So what are the 10 most
important things to consider when developing an outsourced manufac- turing solution and the supply chain that surrounds it? At Riverwood we see all kinds of
supply chains, good, bad and down- right ugly. We see more vendors than most, and we visit an unhealthily large number of factories in all the world’s manufacturing geographies. Here’s a little of what we’ve learned along the way and what we like to consider with clients when we start the vendor selection process.
Customers first. A great starting point is to consider where your mar- ket is, where most of your customers are likely to be. Then you can think about where and how to ship the product to them. Don’t underesti- mate the cost of fulfilment along with the cost of upgrade or reverse logis- tics or even recalls should they be re- quired. Also how diverse is your mar- ket? Is it domestic, regional or global and would one manufacturing loca- tion suffice, or do you need to consid-
By Mark Medlen, Chief Operating Officer, Riverwood Solutions er a global multi-site vendor?
Price elasticity of demand (PED). What price do you need to sell at to get the volume of sales that you need? You will also want to consider how the price of your product might vary with volume and how it may be erod- ed over time as new competitors come into your space. First to market ad- vantage is good, but it is temporary and you may need to review pricing sooner than you think. You need to really understand what you can sell for, how many you can sell and what margin you need to support the prod- uct and develop the next model.
The influence of labor. How much of your manufacturing cost is labor and how much is for materials? This question will certainly impact upon your selection of geography, as will the types of materials used in your product. The details and sources of the BOM (Bill of Materials) will hold great sway.
Downstream vendors. Supply chains do not operate in vacuums. They are complex connected ecosys- tems. Your materials and their
sources will influence the choice of vendor. Mechanical parts such as metals or plastics may dictate the best place to build a given product. This may be true with your vendor’s vendors too. You’ll need to explore a few tiers down to get the right sort of robust and low-risk supply chain.
Marketing and politics. We have all read plenty of articles on re- shoring. Some of us have even writ- ten a few. It’s worth considering what political, cultural or marketing value your manufacturing location brings. It’s always interesting to see Apple product emblazoned with “De- signed in California” while everyone knows they’re “Made in China”. Would a “Made in America” impri- matur provide value, and what is that value?
Cost of liaison. I fly to Asia regular- ly to visit vendors and we have a lot of feet on the ground supporting our clients there and in all the other manufacturing locations, but work- ing with vendors in distant geogra- phies is not without cost and this needs to be considered. These might be financial costs of visits, but they may also be costs in time, slowing your entry into a particular market.
All at sea. Sea freight is cheap, but slow. Consider the cost of the stock that’s at sea, along with the invento- ry overhang if that model becomes obsolete while still on the high seas. The cost of air freighting goods at short notice may actually negate the savings of manufacturing offshore when something goes wrong and goods are needed quickly. Along with this, weight and form factor or size will play a part in the whole shipping cost equation.
Eggs and baskets. Dividing your business between two vendors can be risky, especially when it’s initially a modest volume, but being with a sin- gle vendor is also a risk. Other risks can come from further along the sup- ply chain with those downstream vendors. A proper risk analysis is es- sential to supply chain planning.
CSER or culture, social and envi- ronmental issues. Consideration needs to be given to those so-called “soft” issues that can become hard is- sues when you get into fields like Mil/Aero, or when a preference be- comes a compliance issue. What are your views about social and environ- mental issues? What’s the potential fallout of bad publicity that may ac- crue because of certain locations, la- bor relations or conflict materials?
Robust design. Much depends on the product itself. Some products are simple and have no variation, limited models and no scope for customiza- tion, but consumers seem to be de- manding more mass customization and more variety. These will impact
on design as well as the supply chain. A product that is built on a platform with late stage customization will need a different approach from one that has a complete configure-to-or- der or “lot size of one” approach. Clearly not all products are cre-
ated equal. We’re making complex consumer solutions, not widgets. As
December, 2015
Mark Medlen, Chief Operating Officer, Riverwood Solutions
a result, vendor and supply chain se- lection is a mixture of science and art, experience and process. Getting it right isn’t easy, but getting it wrong can be disastrous. Web:
www.rwsops.com r
Mark Medlen is a career operations, engineering and supply chain profes- sional with more than 23 years of glob- al operations experience. He has ful- filled operations and engineering roles at numerous companies including Texas Instruments, Micron, Abbott Labs, and Flextronics. Mark has man- aged a number of technology manufac- turing plants around the world, pro- ducing an incredibly diverse array of different products ranging from miniature optical components to mas- sive pieces of factory automation. Over the last few years, Mark
has spent the majority of his time in China managing various EMS and ODM activities for some of the world’s leading OEMs. Mark has managed outsourced production op- erations and ODM programs for more than a dozen major companies in- cluding Cisco, Applied Materials, Motorola, Quantum, Tyco, Apple, Dell, HP, Nokia and Sony Ericsson.
Riverwood Solutions helps OEMs and Brand Owning Enterprises of all sizes with manufacturing strategy, supply chain operations optimization, sourcing, and supply relationships. The company provides consulting and managed services to the world’s lead- ing technology product companies and most innovative start-ups on a local and global basis.
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