Our studies and interviews with our clients and partners in the manufacturing industry shows that these findings are not anecdotal, but being felt by supply chain leaders across the globe.
Digging deeper, we see under the hood of this financial tension a significant shift facing the manufacturing industry – namely, configurability, driven by the demand for customization and choice. From automotive to industrial and heavy engineering, configurability is steadily evolving the manufacturing industry into a high-value, low/mid-volume sector with configurability increasing from previously low levels.
This is the same terrain in which the CPG industry has been operating for decades now. Characterized by low-value, high-volume, CPG supply chains evolved dynamic models like direct store delivery (DSD), direct-to-consumer (D2C), and direct store repositories (DSR) to accommodate increasing configurability and build competitiveness. The manufacturing sector must take a page out of the CPG supply chain playbook to win in this new epoch, where internal pressure resulting from the increasing demand for configurability is sucking in liquidity, leaving businesses cash-strapped.
How configurability impacts supply chains
Configurability becomes difficult to accommodate for manufacturers in high-value, low-mid volume value chains. It not only requires manufacturers to stock a wider range of components, but it also extends lead times and lowers inventory turnover, thus slowing revenue recognition and reconciliation. Moreover, product planning complexity rises, and niche components are typically tied to less favorable payment terms.
Lessons learned from the CPG industry
The CPG industry evolved new models to mitigate these impacts of high configurability. DSD enabled the industry to realize customer demand faster, and D2C accelerated revenue realization and boosted margins on products with otherwise slim margins. Similarly, DSRs enabled the decentralization of inventory complexity and offloaded it to local stores. The key theme in each of these strategies is agility: new supply chain models powered and enhanced by financial and operational agility, thus enabling the CPG industry to turn configurability into a strategic opportunity.
In the manufacturing industry, similar models could improve upon JIT inventories for instance, by delivering configurable products directly to assembly lines or storing semi-configured parts locally to the geographies of demand. Moreover, dynamic inventory rebalancing could help tackle issues like inventory bloat and stockouts with greater efficiency. Likewise, upstream visibility into supplier inventories can help manufacturers operate with leaner inventories while ensuring greater reliability and resilience.
3 key actions to mitigate the negative impact of configurability on manufacturing supply chains
The need for greater agility with rising configurability is also tied to the need for resilience in high-value, low-mid demand scenarios. To attain this dual outcome, here are 3 key actions that manufacturing supply chain leaders can take right now:
- Optimizing the network: Only a fraction of manufacturers today can map their entire supply chain, and most lack visibility into supplier inventories. To address this, manufacturers must invest in end-to-end visibility solutions that provide real-time updates on supplier inventory and production schedules.
Moreover, advanced network optimization tools that factor in multiple variables—such as demand shifts, supplier lead times, and regional constraints—can further help streamline supply chain performance and mitigate risks associated with configurability. - Improving demand planning: Most manufacturers rely on outdated systems, which exacerbate reconciliation challenges and inflate carrying costs. In addition, manual stocking decisions increase the likelihood of procurement risks and stockouts.
To counter these challenges, manufacturers must adopt data-driven demand forecasting models. By integrating machine learning algorithms and predictive analytics, companies can better anticipate lead times, even in high-configurability, multivariate scenarios. - Enhancing distribution: Low forecasting accuracy, experienced by even the largest of manufacturing companies, often results in delays and supply chain inefficiencies. Configurability further compounds these issues by introducing variability in the types and volumes of products.
To enhance distribution, manufacturers should explore decentralized models inspired by the consumer-packaged goods (CPG) industry, such as distributing semi-configured components closer to demand centers. Dynamic inventory rebalancing can address regional imbalances by redistributing stock where it is needed most. Moreover, leveraging digital twin technologies and advanced transportation management systems can optimize distribution routes and schedules, reducing lead times and ensuring timely delivery of configurable products.
By activating these strategic levers, the manufacturing industry can mitigate its liquidity and capital challenges and turn configurability into a differentiator while building leaner and resilient supply chains.
