How much does an hour of production downtime cost your company? For the sake of your business, please consider this amount before resuming operations during COVID-19. Otherwise, you won’t know how much money you’re losing if suppliers can’t provide the parts and materials you need. You probably have a plan for protecting workers and restarting equipment. You’re ready for deep cleaning during the “new normal. But what will you do if your suppliers can’t deliver?
Supply Chain Stress and Factory Downtime
Because of COVID-19, inventories of raw materials and finished components are low. But just like before the pandemic, most companies don’t know their true downtime costs. In fact, some companies underestimate factory downtime by as much as 300%. In the automotive industry, pre-pandemic downtime was costing original equipment manufacturers (OEMs) over $1 million per hour. Your company may be smaller, but you still have plenty to lose proportionally.
Consider the example of a manufacturer with 150 production employees, each with an hourly rate of $50. Purchasing cannot get any of the rubber parts that Production needs, so the entire line comes to a halt. The total cost of employee downtime is $7,500/hour, an amount that does not include manufacturing overhead. Supply chain failure is still painful if the manufacturer can get only some of the rubber parts it requires. If just 70% of Production is operational, the total cost of employee downtime is $5,520/hour.
Maybe it’s not your job to calculate the hourly cost of factory downtime. Regardless, you don’t need to work in the C-Suite to feel this type of pain. If you’re a purchasing manager, you don’t want an angry plant manager in your office who is blaming your department for a work stoppage. If you’re a plant manager, you really don’t want to have this conversation either. Because while you’re talking (and hopefully not arguing) with your co-worker, the business that both of you depend on for your livelihood is losing money.
Four Ways to Strengthen Your Supply Chain
Elasto Proxy, an essential business that supplies industrial rubber plastic and products, has identified four things you can do to strengthen your supply chain as you resume production during the pandemic. In the sections that follow, we’ll use examples with some of the parts that we supply. Remember, too, that you can apply these lessons to other parts of your supply chain. Because Elasto Proxy is problem solver rather than just a parts provider, we want to help your entire business succeed.
#1 Determine Product Availability
Can your regular suppliers provide the parts or materials that you need when you need them? Find out. Don’t assume the answer is “yes”. If you can expect anything, it’s delays from businesses that were deemed “non-essential”. After all, they need to resume operations and ramp-up production, too. According to a recent Institute for Supply Management survey, almost 75% of U.S. companies have experienced disruptions in their supply chains as a result of transportation restrictions related to COVID-19. Unfortunately, their problems are now your problems, too.
#2 Understand Vendor Capabilities
Many buyers do not know their vendors’ full capabilities. For example, some of Elasto Proxy’s customers think we’re just a distributor. Others think we’re just a gasket fabricator. Fewer know that we distribute materials, fabricate gaskets, source molded rubber products, make thermal-acoustic insulation, and provide other services. It’s easy to overlook a vendor’s additional capabilities when you’re busy, but don’t wait for a production stoppage to identify an overlooked vendor who can supply more of what you need.
#3 Look for More Ways to Save
Because the supply of parts and materials is low, the prices you paid before the pandemic may have risen. If your company didn’t lock-in vendor pricing, you need all the leverage you can get during price negotiations. Buying multiple products from a single supplier can help. It’s like a volume discount across multiple SKUs. Buying from fewer vendors also lets you reduce shipping costs, speed receiving and handling, secure more favorable terms, and reduce the cost of processing payments.
#4 Monitor Vendor Performance
When all of the COVID-19 restrictions are lifted, manufacturers want to be busy as they meet pent-up demand. No matter how you busy you get, remember to monitor vendor performance carefully. There’s always a cost to adding and maintaining vendors. So, is it better to have fewer vendors, but ones you can depend upon? Or does your company carry a list of suppliers that costs senior management money plenty of money on vendor scorecards? And as for today, can these vendors deliver during the “new normal”.
Reduce Supply Chain Stress and Avoid Factory Downtime
Elasto Proxy, a global provider of industrial rubber plastic and products, is an essential business that has continued its manufacturing operations near Montreal, Canada throughout the COVID-19 crisis. That means we don’t need to restart production to make what you need. Moreover, Elasto Proxy can leverage its own supplier network so that you can get more of what you need from a single source you can trust.
To learn more, talk to our team.