The past four years have been defined by volatility, uncertainty, complexity, and ambiguity (VUCA), impacting every aspect of society, industry, and the economy. This trend began with COVID-19 destabilizing the supply chain but was soon followed by a number of unrelated challenges. For the third year in a row, extreme winter weather events have hindered production in the Southern U.S. The ongoing conflict in Ukraine has also resulted in a wide array of material shortages, driving inflation throughout the value chain and contributing to even more supply chain instability.
The only certainty in the “VUCA world” is uncertainty, so the manufacturing industry must expect the unexpected and strategize accordingly. What lessons can manufacturers take away from these events? And how can they position themselves to navigate the next big shock?
Improving Resilience in a VUCA World
Before COVID-19, resilience wasn’t on many manufacturers’ radars, but now it dominates most conversations in the C-suite. Here are three ways manufacturers can both navigate the ongoing volatility and overcome the next big disruption:
1. Move closer to customers
Just-in-time manufacturing and the low cost of international shipping completely transformed the supply chain. Relying on production hubs in China and other regions proved to be incredibly profitable for U.S.-based manufacturers. However, when COVID delayed, or completely shut down, these traditional routes, many companies suffered from immediate inventory shortages. Procurement teams scrambled to secure materials from alternate suppliers — if any were available at all.
Now, a key survival strategy is to move production closer to customers to prevent future disruption. Overland shipping is more reliable than international freight and also allows suppliers to respond more quickly in the event of a crisis. Manufacturers can enhance supply chain security either through partnerships with suppliers closer to their customers or by investing in expanding production in a strategic region. Both may lower profit margins in the short term, but enable more robust and resilient operations in the long term.
2. Lean on relationships
During a major shock, solid relationships with both suppliers and customers are critical to remaining resilient. In times of limited inventory or bottlenecks, procurement teams may feel pressure to find alternative vendors to meet contract deadlines. However, rushing this process makes it difficult to properly vet new suppliers, putting manufacturers at risk of quality issues or regulatory compliance violations.
Manufacturers do better when they leverage longstanding supplier partnerships and communicate about deadlines, concerns, and liabilities, which allows for win-win negotiations when extending contracts. Maintaining relationships also position companies to maintain priority in unexpected circumstances.
3. Invest in the future, even when it’s hard
To be truly resilient in a VUCA world is to plan for long-term success rather than short-term profits. That means making strategic investments even when competitors might be scrambling to cut costs. In addition to building production hubs closer to customers, manufacturers also need to reconsider the amount of inventory they carry as well as the equipment and systems they use.
Bolstering inventory can provide a cushion in the event of future disruptions. Investing in new software and technology to improve operational flexibility can help management respond more nimbly to crises, while also future-proofing operations. Spending more capital upfront on high-end machinery, materials, and supplies that require less maintenance and last longer can prevent downtime in the future, especially if there’s a part shortage.
Manufacturers should also consider shifting to more sustainable sources, even if it raises costs. Early adoption will help them stay ahead of regulations and consumer demand. Building relationships with sustainable suppliers will establish history ahead of their competitors.
In such a destabilized world, manufacturing faces the same challenges and uncertainties as every other industry. However, the choices companies make during a time of disruption will define their position after the event ends — and this extends to choice in partnerships. Master Fluid Solutions® has been an innovation leader in the metalworking fluids sector since long before the pandemic, enabling us to support our customers during these challenging times. Contact us to learn more about how we work with customers and distributors to create a stronger supply chain.