EBN Online: Mitigate Direct Materials Risk in an Uncertain Market
Cost savings, production efficiencies, speed, skilled labor, expertise, and specialty materials — just a few of the many reasons why global supply chains are central and critical to the business and product success of most major brands. However, the rewards don’t come easy. Relying on raw material suppliers, manufacturers, and contractors from around the world introduces myriad risks, starting with complexity.
Everything from design to delivery is affected. Every supplier in the chain represents potential operational, financial, regulatory, and product quality and safety risks. Global forces like geopolitical strife, tax and tariff maneuvers, natural disasters, and far-reaching legislation (e.g., GDPR and climate agreements) shift the risk landscape, often producing cascading impacts through the supply chain. And the primary enterprise shoulders most of the risk burden.
As reliance on third parties grows both broader and more entrenched, these enterprises need to develop streamlined, flexible, and highly effective mechanisms for control and visibility throughout the product life cycle. The current uncertainty surrounding tariffs and trade disruption highlights the need for stronger risk management capabilities, especially when it comes to sourcing direct materials. Risks related to sourcing and procuring direct materials should be assessed and managed at every stage of the product lifecycle, beginning with design and following through to quality assurance, packaging, and delivery.
For example, in light of steel and aluminum tariffs and U.S. supply shortages, product designers must ensure that any specialty component made of those metals is readily available from domestic suppliers or multiple foreign sources — and if not, they may discover that their design will be too expensive to produce, sending them back to the drawing board early in the process. Engineers may need to assess the viability of using alternate materials or components in current products for the same reasons.
Finally, what happens if replacement parts for maintaining and repairing existing products become hard to obtain, or too expensive? Service departments need to know this information in enough time to develop workarounds, and in some cases, inability to obtain parts may force a product redesign. The speed, efficiency, intelligence, and automation of direct materials sourcing systems are critical to adapting to scarcity, price increases, and alternate plans before customers are negatively affected and start looking elsewhere.
Having a collaborative and connected ecosystem is important. For example, sharing your forecasted needs with a supplier and collaborating digitally on capacity, lead times and quantity, gives you more agility and control and helps to secure your supply chain requirements.
This article ran on EBN Online on Aug 21: https://www.ebnonline.com/author.asp?section_id=4118&doc_id=283610&page_number=1