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Shorter supply chains = local reliability

Sept. 11, 2020
Strong Links: Part 3

Read more in the Strong Links mini-series!

While most links of the process automation supply chain were damaged by COVID-19, and none were unaffected, one of the primary types being reexamined is the long, multi-point, global versions because they were shown to be increasingly fragile. Because raw materials and basic components from distant suppliers have been delayed or unavailable, many users are refocusing on local or regional suppliers that are closer and supposedly more reliable.

For instance, a key difference in Digi-Key Electronics' strategy is it doesn't have fulfillment centers worldwide, and instead operates one centralized hub in northwestern Minnesota, and relies on fast logistics to get its products where they need to go. "We find it's most efficient to distribute our inventory from one single point, and ship globally from our site in ThiefRiverFalls," says Margaret Cunha, western regional supply chain solutions director at Digi-Key. "We can ship products anywhere in the U.S. in 24 hours and worldwide in as little as 48 to 72 hours." In fact, Digi-Key recently doubled down on its one-hub strategy by building a new, four-story, 2.2-million-sq-ft, $300 million product distribution center, which is located next to its existing facilities, linked by a sky bridge, and scheduled to open in 2021 (Figure 1).

Cunha adds that COVID-19 hasn't impacted its business too badly because most of its staff and customers quickly transitioned to working at home, while its inventory team continued to work onsite with personal protective equipment (PPE), social distancing and improved safety measures. "About 80-90% of our more than 4,000 employees work at our headquarters. However, four days after the initial shutdown in the third week of March, we were impacted by the shelter-in-place order, and sent most everyone to work from home with laptops, phones and Wi-Fi connections. Our IT department went above and beyond," says Cunha. "It's not optimal, but like many other companies, we've successfully stayed connected through WebEx, Zoom and Microsoft Teams."

Reshore for sure 

Of course, one way to shorten a supply chain is for customers to keep more of their suppliers in their own country.

"The U.S. Dept. of Health and Human Services (HHS) is contracting with General Motors and Ventec Life Systems, Ford and GE Healthcare, Zoll Medical and Vyaire, and other ventilator manufacturers, but they ran into supply chain issues, especially when relying on overseas networks," says Vikram Kumar, president and CEO of AVG Group, which includes EZAutomation. "Ventilators and the chipsets in them depend on printed circuit board assemblies (PCBA), flow sensors and pressure sensors. However, after China shut down at the beginning of the pandemic, problems with their usual supply chains meant many manufacturers had to go to domestic sources including AVG, which does all its R&D and manufacturing in the U.S. We're continuing to help, and even designed a new pressure sensor for these devices."

Kumar reports that COVID-19 and resulting struggles with the usual international supply chain demonstrated that it was less reliable than its users realized. "This has been a real eye-opener for manufacturers and the U.S. economy. It shows they need to onshore production of medical devices and parts, and they can't rely as much on overseas manufacturing," adds Kumar. "These have been tough times for many people, but bringing more manufacturing back to the U.S. will be less disruptive."

On the exporting side, Kumar explains there were even delays in AVG and EZ Automation's product deliveries because FedEx, DHL and other carriers limited flights, while consolidating by adding commercial containers to regular airline flights were also greatly reduced, though some of this traffic picked up in June and July.

When supply chains are disrupted and economies falter, Kumar adds that it's essential for suppliers and distributors to offer enhanced services and flexible financing and payments to clients facing unprecedented challenges. "Many plants can only allow essential services people onsite, so many scheduled upgrades and projects with capital expenditure approvals were delayed or cancelled. We've been retooling some of our manufacturing because, while automotive production was down, medical, pharmaceuticals, municipal water, consumer goods and groceries were up."

Community, culture helps downstream

Just as they shifted to help their staffs and upstream suppliers cope with COVID-19, many manufacturers and distributors are reorganizing gears to assist their downstream customers.

"If an end user wasn't aligned to respond to COVID-19's effects, they likely saw declining business," says Digi-Key's Cunha. "Some pivoted to aiding responses by others, such as automakers building ventilators, which shows how much flexibility is needed to shift and stay relevant. Many of our customers were able to transition to new projects required to offer support during the COVID-19 pandemic, especially the smaller contract manufacturers. Digi-Key already has 24/7 tech support, but early in the pandemic, we worked with the University of Minnesota on an open-source ventilator design, and within 30 days released the inventory that a potential first-tier supplier would need to build it."

In fact, Cunha attributes much of Digi-Key's ability to cope with COVID-19 to the sharing practiced by its overall community in Thief River Falls, Minn. "Our people make the difference. We have an amazing company culture where everyone's willing to pitch in and help each other," says Cunha. "It begins with our leadership. The executive staff stays connected to the employees. They care about our well-being and understand that their employees are their largest asset.  During the pandemic, the executive team has provided regular updates on its status, where the company is health-wise, safety tracking, health requirements and cleaning procedures. They understand the importance of communication and keeping everyone informed.

"What's interesting about these updates is the connection and communication between staff is as important as the content. Our employees are like a large family and they care about one another. Our community really rallies around when someone needs help, and this type of behavior bleeds into and infuses how we support our customers as well."

For instance, as more personnel work remotely and get familiar with online and digitalized tools, they can interact with clients better, which has a positive effect on their markets, according to Cunha. "Digital communication tools have helped our teams stay connected with our customers, and in some cases our remote staffers have never been busier. Speed is a big result of COVID-19, people have learned to do their jobs differently, transform and pivot to respond faster. Automated supply chain can be enhanced despite the pandemic. We had to do some things differently, but that's not necessarily a bad thing."

Getting a bigger digital jump

Beyond anticipating upcoming needs and issues, some suppliers and distributors are working closer with their upstream components manufacturers to project and anticipate customer needs further into the future. This is similar to the close-knit relationships that consumer goods suppliers like Amazon have formed with many of their manufacturers. 

"From the time we get an order from a customer, we can have it picked, packed and shipped in 20 minutes. Our operational proficiency has incredible capacity," says Cunha. "Consequently, we just launched our Digi-Key Marketplace (DK+) initiative that lets customers order from the upstream manufacturers we work with."

Similarly, Cunha adds that Digi-Key is adopting other more digitalized business practices. "A few years ago, we started using application programming interfaces (API) for system-to-system pricing, availability and ordering for our customers. APIs have been around for awhile, but they're gaining traction with procurement professionals, as they're more flexible than traditional electronic data interchanges (EDI)," adds Cunha.

Advice for chain maintenance

Digi-Key's Cunha adds that optimizing supply chains is made more difficult with the issues and closures caused by the pandemic. "Supply chains mainly require anticipating and managing risks, so it's critical to understand where the weaknesses are in your current supply chain, and put in a contingency plan to gauge impacts, balance cash flow, and determine how to keep manufacturing up and running," says Cunha. "We've been using Z2data's risk-management software for supply chain management because it can highlight areas likely affected by COVID-19 by indicating what components aren't being made, and report on potential ramifications to the supply chain. If impacts are anticipated and financing is maintained, then a manufacturer can survive to play another day, weather the pandemics, and be available for jobs after it's gone."

In the initial days of the pandemic, Digi-Key and Z2Data partnered to offer priority support and component data at no cost to firms building medical devices such as ventilators and testing solutions that fight COVID-19, which helped them quickly source components and ramp up production. Z2Data also offered free-of-charge access to its electronic components database through its Part Risk Manager and Supply Chain Watch software, which let users meet market demand by managing their bill-of-materials, make informed part-selection decisions, find cross-references and alternatives, and track inventory availability of parts alongside real-time pricing and lead times.

About the author: Jim Montague
About the Author

Jim Montague | Executive Editor

Jim Montague is executive editor of Control. 

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