Leslie Klein. (photo supplied)

In the business world sometimes even chain mail can't protect you from the slings and arrows of outrageous fortune. Talk to any manufacturing-based business, however, and they'll tell you supply chain management is where it's at.

Effective supply chain management is crucial for businesses involved in any kind of manufacturing venture, especially in today's worldwide economy. But what, according to the big kids in town, are the most important elements of that chain? Is the chain – as the cliché happily informs us – only as strong as its weakest link?

The OBJ spoke with Leslie Klein, chief executive of C-Com Satellite Systems, for his take on the chain game.

OBJ: How did your business get started, in a supply chain sense?

KLEIN: The company has essentially been running for almost nine years and started out as a three-man operation, with no manufacturing or anything like that. And then went from a typical software shop to a full-blown manufacturing and distribution operation three or four years ago.

OBJ: So what were some of the biggest challenges of getting a supply chain up and running smoothly, when you were first starting out?

KLEIN: The biggest problem was the design aspect, because we had to design a product that nobody in the world had. So that was very difficult, and we had to tell someone to design it, and write the software for it. And we actually outsourced most of these tasks, which is I think the best way to go, if you want to minimize your risk and build a business. We outsourced the design, and even today we outsource the manufacturing of the product. The only thing we really do is R&D – we don't do any manufacturing at all, so everything is outsourced, it gets delivered to us, we integrate it and then we ship it.

So the biggest challenge was building something that had never been built before, then marketing it, selling it, and supporting it around the world. And it's a bunch of different tasks that are all extremely complex and rather difficult to pull off.

OBJ: And how did these challenges evolve as your company grew?

KLEIN: The challenges have changed to improving the product, creating new products, creating price competitive products, and so that's another complexity altogether. On top of that, you now have to provide spare parts – you have to keep parts in stock for customers that have two to three year old products that are discontinued. So it's a moving target – every time you develop a new product, you have to start the whole process all over again. You have to design it, you have to write new software for it, you have to manufacture it, warehouse it, distribute it, and support it. It goes on and on and on.

OBJ: Is the supply chain only as strong as its weakest link, and if so, what typically is that weakest link?

KLEIN: The weakest link to us is really relying on outside sources for manufacturing, and the quality that you expect them to produce. That's something that you don't control. You can specify things, and you can assume things, but when the product arrives and it doesn't do what you expected it to do, that's very difficult to deal with. Because it's not being done inside, but that's the price you have to pay for not having 50 people sitting there and building products for you.

Once you have those 50 people, you can be very thorough with them, but once it goes outside there's no guarantee those improvements you specified are going to get into it. They have their own agenda – their agenda is to manufacture the product to you, and blow it out the door. You always expect people will do things to 100 per cent of their ability, but that's rarely the case – they have deadlines to meet, month end targets to meet, et cetera.

And that's not for every product – there are a whole bunch of outsource manufacturers, and some of them are better than others, and some are more responsive than others. And you are really at their mercy to a certain extent, because they usually do the best they can, but that might not be good enough for you in terms of quality.

OBJ: What's your main piece of advice you'd give to firms just getting their supply chain systems up and running?

KLEIN: The first thing I would says is that if you can do something outside, don't do it inside. There is a sacrifice, of course, but outsourcing will give you the ability to crank out large volumes of orders with somebody that is capable rather than you building a whole workforce and setting yourself up to become a manufacturer, because that just doesn't work anymore. It's not possible to do that, if you want to be competitive and be a company that can ramp up rapidly to build hundreds of thousands of units instead of building five or six.

Also, to watch the inventory is extremely important – you don't want to overbuy, but you don't want to under-buy either. So when you're ordering it's very difficult to manage, and it's more difficult when you're outsourcing. It's not possible to turn on a machine like that, when you're outsourcing – you have to have long-range plans, and its very difficult finding the middle ground.

And a lot of it is really business acumen you have to use to make sure you don't blow your brains out by having too much stuff, and conversely that you don't have nothing when somebody wants to buy hundreds of units from you – that is really painful.

THE EXPERTS SAY

It's really about aligning market demand with supply, and if you get those two out of alignment you end up with one of two situations – you don't have what you need on the shelf when someone goes to buy, or you end up with inventory because you don't have the right products for the right market. So there's a constant desire to try getting demand and supply as aligned as possible, to give the right level of service to the market and reduce costs.

Today, demand has never been more unpredictable. But if you look at today's market – and consumer electronics is a good example – it's almost like the fashion industry, and that's a completely new dynamic for the market. And there are more electronics going into consumer products than into traditional business products. And so it's really, really hard to predict demand.

And at the same time, this whole phenomenon of outsourcing to the Far East happened. I used to be able to go down the hall and ask George, "Hey, can you make this product in time?" But now you can't talk to George – he's on the other side of the world, in an outsourced supply chain. So not only have we made demand unpredictable, but we've made it much harder to manage supply. That's the big challenge of the supply chain market.

Dave Haskins, CTO, Kinaxis

From a global supply chain perspective, you need to really understand the characteristics of your business, and what you're trying to accomplish – so who are your customers? Are you dealing with regional customers? Retailers? Distributors or wholesalers? Also, understanding that, you need to figure out the type of strategy you're going to adopt – are you going to be in a dynamic where you'll be more of a flow-through supplier, or are your making to order or assembling to order?

Those are the characteristics of what your strategy is going to be, and often the focus is between either outsourcing or keeping it in-house, in terms of manufacturing, distribution, and all that. So it's really a question of trust, trust of the other players in the supply chain – to what extent are you integrating with, or collaborating with, the other folks in your supply chain?

I've seen this in the past in more retail businesses – let's say I'm going to partner with my distributor, then they'll share with me the sales numbers so I know how much product is flowing out. So maybe I don't make as much, but I've got the information earlier and if they're flying out the door, you know to ramp up your production to meet the demand. It's a better result for the retailer and for yourself, when you share and collaborate with your supply chain partners.

Jonathan Hopkins, P. Eng. consultant, Deloitte