Three Cost Challenges Manufacturers Face — and How To Overcome Them

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Manufacturers are getting hit from all sides with increased business costs. In response, savvy manufacturers are leveraging robust, tech-enabled connections with their business partners for more visibility and efficiency in their operations. This enables them to see, share and collaborate outside their own “four walls” and work collectively to counter higher costs with greater effectiveness and supply assurance. 

Here are three core cost challenges manufacturers face and strategies to navigate them.

Challenge: Siloed systems inhibit operational visibility

Many manufacturers rely on legacy technology solutions that only operate in silos. Or they have moved to more modern technology but haven’t yet extended their systems and processes to their suppliers and trading partners. These systems often aren’t integrated and may struggle to share information internally, but they are certainly not able or geared to share information and processes externally with trading partners. This presents several challenges, including:

• Low operational visibility.
• Zero collaboration with partners like contract manufacturers, subcontractors, and third-party logistics providers (3PLs).
• A lack of end-to-end supply chain collaboration. 

These problems escalate outside of the manufacturer’s four walls, where good supply chain collaboration must involve integrated business planning and shared supply and demand forecasts among buyers and suppliers. Without this connectivity, some of the most important supply chain and production decisions may be left to single-sided assumptions, lacking in visibility and collaboration from trading partners. And as all companies have learned over the last few years, siloed thinking doesn’t play out well in the modern manufacturing environment. 

Blue Diamond Growers is one manufacturer that’s cultivating an intelligent, data-driven cooperative using SAP solutions. With SAP S/4HANA®, the SAP Transportation Management application, and SAP Business Network in place, the growing company has eliminated cumbersome and siloed manual processes to build a risk-resilient supply chain. 

These solutions give Blue Diamond a single source of truth for its planning and logistics processes. For example, using SAP solutions, the company:

• Reduced its supply-on-hand by 20%.
• Saved $1 million in annual transportation costs.
• Increased its customer order fill rates to 99%. 

Other key benefits from collaboration through their supply chain include faster and more dynamic planning; the elimination of bottlenecks and shortages; and improved response times in planning and customer support functions.  

Challenge: Manual processes inhibit efficiency and innovation

Growing manufacturers know their siloed system and manual processes won’t cut it in today’s fast-paced business world. Yet many still use spreadsheets and email to run their supply chain operations and collaborate with trading partners. Where spreadsheets may have once been the workhorses for business data management, they’ve since been replaced by integrated systems and processes that enable partners to collaborate across companies for better efficiency and compliance. 

Despite the inefficiencies, many companies still rely on communication tools like email and electronic data interchange (EDI) for interacting and transacting with their business partners. Neither method supports effective collaboration and cohesion across the partner ecosystem, where inefficiency and poor visibility lead to rising costs that fall right to a manufacturer’s bottom line. 

When companies extend their processes to their supply chain partners, they can gain efficiency, visibility and improved compliance, to be more competitive, manage potential disruptions, and drive cost out of their businesses. Manufacturers with upstream and downstream supply chain visibility can more effectively address issues that can impact the entire supply chain, such as product recalls or product compliance to regulation.

The SAP Business Network Material Traceability solution, for example, provides trading partners along a supply chain the ability to trace materials and product content back to their origin, as well as to the distribution destination of finished goods. Quickly knowing what’s in a manufacturer’s product and where it came from goes a long way to fast and effective recalls when quality issues arise, and with meeting challenging, mission-critical regulations.  

Challenge: Disjointed supply chains add cost and stymie collaboration

Smooth-running supply chains are a positive indicator of health for manufacturing organizations. But if raw materials, suppliers, production lines and distribution channels are misaligned, the consequences can be expensive and significant. Inventory problems, production delays and missed market opportunities — not to mention unhappy customers — are just some of the costly impacts that manufacturers feel when their supply chains are out of sync. 

A producer of household appliances, Mabe, understands the value of a tech-enabled supply chain. The company was using manual means to collaborate with direct materials suppliers on production planning, inventory and quality processes. As part of a digital supply chain transformation, Mabe streamlined these processes using SAP Business Network. Today, the company is collaborating with its trading partners more quickly and efficiently.

Mabe deployed the SAP Business Network Supply Chain Collaboration solution, enabling enhanced collaboration on planning, subcontracting, quality, consigned inventory, and related supply chain processes with trading partners, including direct materials suppliers and logistics and services providers. 

The company can now share information with its suppliers, providing a single source of truth that enables its supply chain to work more efficiently. Suppliers even use the solution to automatically generate invoices, which results in fewer errors and less work managing invoices. This frees up time for the company’s accounts payable department and translates into real cost savings for Mabe and its business partners. 

Get everyone working from the same playbook

Manufacturers rely on a complex ecosystem of partners to help them bring products from the point of raw material to the store shelves (or the consumer’s doorstep). Siloed information, process gaps and poor visibility interfere with an effective supply chain. However, a solution that connects the systems and processes across companies can build a stronger supply chain. 

When emails and phone calls to suppliers, contract manufacturers, and carriers are replaced by one integrated platform for collaboration, companies can let their people focus on growing the business. This is just one of many reasons manufacturers are extending their own processes to robust digital networks connecting their partners in a single ecosystem. 

SAP Business Network provides the visibility, efficiency, and platform for compliance that growing manufacturers need to avoid and withstand disruption — and boost their bottom line. 

 Ready to extend your business processes for growth? Read more about how SAP Business Network can connect your supply chain.