Is Your Supply Chain As Secure As You Thought?

There are 2 times a year that are worrisome for supply chain executives – spring and end of year. Every spring two things happen – corporate taxes are due and year-end bonuses are paid out – both of which can be devastating.   When corporate taxes are done, some companies decide to close shop.  This month a large shop is closing its doors leaving many OEMs to scramble for another suppler.  Bonuses are also paid out (or not) and key executives decide to change companies.  This happened to us last month and we are now looking to fill an Ops Leader role, but we see this with OEMs as well.  The same phenomena occurs at the end of the year.  Here are some things to know for you to be prepared:

The New England Workforce is Nearing Retirement

Data shows that there has been a 23% increase in retirement age workers in the past decade and this is expected to increase to 33%. Many owners of machine and sheet metal shops who started their businesses in the 70’s are now approaching retirement age and they do not have strong succession plans.  When is the last time you reviewed the succession plans of your suppliers?

Operations Leaders Are Hard to Find

Forbes predicted that Operations Managers will be the 3^rd hardest position to fill in 2016 – out of thousands of positions!  The expected demand for Ops leaders is expected to be 635,000 in the next five years.  And the demographics are not in our favor.  There are less young people working than when the baby boom generation headed off to work.  Of the fewer folks going to work, even less are going into manufacturing positions.  The operations leaders of today all started off as young manufacturing workers 40 years ago.  When they retire, less people are in the “management pipeline” than ever before.  Do your suppliers have 5 year future looking org charts so you know their development plans for next generation leaders?

Most Sheet Metal Shops Don’t Get Bought

With all the merger and acquisition news, you might think your supplier might sell the business to a larger, better sheet metal shop so your supply chain will be secure. The evidence here in New England does not support that.  MSM closed and auctioned their equipment.  Bay State Metals closed and auctioned their equipment.  J&J closed and auctioned their equipment.  Mico closed and sold their equipment.  Cado closed and auctioned their equipment.  The economics typical mean the equipment, inventory and sales list is more valuable than the on-going business, so many owners simply close rather than transition the business.

How Do You Protect Yourself?

If your supplier closes, your second source can’t typically absorb 2x or 3x the business immediately. One thing to do is negotiate a 90 day supply so you can find another source.  Most owners going out of business don’t want to keep running (at a loss) for 90 days, but making 90 days of product in 30 days might be profitable for them and helpful to you.  Be careful they don’t lose their best people in that 30 day window.

If your supplier loses their key person, don’t assume business as usual. Check to make sure they have management depth to fill the position internally.  It they are hiring outside, make sure their interim plan is a good one while they hunt for a replacement.  Even better, suggest people to help fill the position faster.  There is nothing better than building obligation with your supplier.

One thing is for sure, more shop owners will retire in the next 10 years than the last 10 years and there are less operations leaders to fill those empty spots. Choose your suppliers carefully.

from ETM Manufacturing http://etmmfg.com/3682