Two ways to optimize your production for multiple product lines

When introducing a new product, should you work with your current supply chain to optimize your part costs for both products, or add additional supply chain partners to optimize quality and efficiency for the new product? This article discusses the pros and cons of each option and offers

When introducing a new product, should you work with your current supply chain to optimize your part costs for both products, or add additional supply chain partners to optimize quality and efficiency for the new product? This article discusses the pros and cons of each option and offers suggestions to help you in your decision-making process.

You’ve hit a key milestone: You’ve developed a new, cutting-edge product and would like to begin manufacturing it alongside your more stable and easy-to-manufacture product lines. And now you have a decision to make.

Should you work with your current supply chain to optimize your part costs for both products, or add additional supply chain partners to optimize quality and efficiency for the new product?

Key factors in your decision-making process

  • Available resources—Do you have the time and money required to manage multiple supply chain vendors for each product line?
  • Organizational priorities—Would you rather optimize your process for design or optimize for cost?
  • Supply chain life-cycle—Does your current supply chain have room to mature along with your product lines?
  • Supplier relationships—Will your current supplier help you optimize for each product line? Does your current supplier see you as a priority customer?
  • Risk—Can you handle the risks that come with adding a new supplier?

Weigh the options before making a decision

Option A.

Optimize part costs by working with a single supply chain.

Option B.

Find the best supply chain for each product line.

Option A: Stick with your current supply chain to optimize costs

When this can work for you:

  • You have high-volume, low-complexity products that share similar tooling, raw materials or assembly procedures Ex: If a box company comes up with a new size or shape of box, it makes sense to leverage the same supply chain than to find someone new to do nearly the same thing
  • Your organization lacks the resources to manage new supply chain partners
  • Your current supply chain partner can offer diverse solutions and has room to grow
  • You are confident in your ability to source back-ups if something happens to your current partner

Potential Benefits

Risks

Simplicity Decreased stability
Reduced part costs from volume purchasing Lost opportunity for innovation
Reduced management costs and required resources Increased dependence on your current supply chain partners
Opportunities to build upon an established relationships A team that isn’t the best fit for the new product

Work with one supply chain to reduce errors and simplify

Having a single supply chain keeps things simple. Managing fewer personalities and hand-offs throughout the production process can reduce errors and lighten the load on your management team. It can be risky to hand things off to a new supplier, and you may not get the level of service you were promised in the initial sales pitch. Although a new supplier may make big promises, you already know what you can expect from your current supply chain, so it’s less risky in the short term to stick with what you know.

Use your current supplier to take advantage of economies of scale

Increasing your volume with your current supplier can result in a significant cost reduction thanks to volume pricing. If you use similar parts across all your product lines, working with a single supply chain makes it much easier to determine your part overlap, and coordinate purchasing to get incentives based on your larger volume.

“New” isn’t always improved

If you do add a second supply chain, not only do you lose the opportunity for volume pricing, but costs can add up quickly—not only the initial set-up costs, but also the added management costs that you incur even after the new supplier is up and running. Multiple supply chains can be the best way to optimize product design, but the stress of managing multiple chains can sometimes take your focus off the product.

Option B: Find the best supply chain for each product line

When this can work for you:

  • The components and manufacturing processes of your current and new product lines are very different
  • Your management team has the availability to take on additional responsibilities
  • Your customers are very quality-sensitive
  • You’d like to reduce your overall supply chain risk
  • You don’t have strong relationships with your current supply chain partners

Potential Benefits

Risks

Reduced supply chain risk Less opportunity for volume pricing
Better matched supply chain partners Additional set-up and management costs
Aligned competencies for each product Increased complexity
Better delivery times and higher quality
Increased flexibility and innovation

Diversify to minimize long-term risk

Although there is inherent risk in making a big change like adding a supplier, a diversified supply chain reduces your risk in the long term.

The grass just might be greener after all

Adding a new product line is the perfect chance to try working with another supply chain, especially if you haven’t been happy with your current team, or have been working with them for a long time. Who knows? If the new suppliers really impress you, it may make sense for you to bring all your business to the new supplier when your product reaches maturity.

Choose the “best” to get the best results

The notion of “best” for each line implies obvious gains. Having suppliers whose competencies are matched with the needs of your product can lead to faster delivery, higher quality and lower cost—which in turn can lead to increased customer satisfaction and increased profits.

Take the opportunity to innovate

The prototype and early production phases are a great time to shake things up. There are few times in your company lifecycle that you have the opportunity to really innovate, so make the most of them when they come. Even if you are happy with your current supplier, adding a new supply chain shakes things up, and allows you to flush out new ideas for your product and process. By sticking with one supplier, you miss the opportunity to find a new and better way to do things.

To recap:

You may want your current supply chain to manage your new product line if:

  • Your internal management team lacks the availability and competency to take on new supply chain partners
  • You have high-volume, low-complexity products that share similar tooling, raw materials, or assembly procedures
  • Your current supply chain partner can offer diverse solutions and has room to grow
  • You are confident in your ability to source back-ups if something happens to your current partner

Consider working with a new supply chain team to manage your new product line if:

  • The components and manufacturing processes of your new and current products line are very different
  • Your management team has the availability to take on additional responsibilities
  • You can’t afford a slip in quality
  • You’d like to reduce your overall supply chain risk
  • You don’t have strong relationships with your current supply chain partners

Tips for making it work

If you stick with your current supply chain partner through a new product introduction, it may make sense to use the new product as a bargaining chip for better terms, or as a way to demonstrate your faith in your partner and improve the relationship. Remember, happy supply chain partners do a better job, and ultimately create a higher level of customer satisfaction. If you stay with your current supply chain, think it through—don’t put all of your eggs in one basket just because it is the path of least resistance. When you have a positive relationship with your supply chain it’s easy to assume there’s nothing better out there, but it may be a worthwhile investment to perform your due diligence and explore the potential of a new supply chain. If you diversify, start small—the less you gamble, the less you can lose. Whenever you are dealing with new partners you should be careful about how quickly you invest. Put your toe in the water to see how it feels before you jump in. If you are planning to make the investment in a new supply chain, consider how many units will have to be sold to recover your sunk costs. Don’t rush into a new manufacturing environment without making sure there is potential to recover your upfront costs.  Keep your eyes open for the sales pitch—while a new supplier will make big promises to get your business, it’s important to bring the sales pitch down into cold hard facts.

Best Practices