Today’s supply chain landscape is continually evolving. Abrupt market fluctuations, natural disasters, and regulatory policy shifts all impact the way companies move their products from conception to customer, and the more components involved in the product, the greater the challenges of maintaining a stable supply chain. Original equipment manufacturers (OEM) frequently build products from a large number of components and subsystems, so they often feel the greatest logistical pain.
This guide will examine the ins and outs of creating a comprehensive OEM supply chain strategy. First we’ll list the main players in an OEM supply chain, then we’ll address some key challenges that OEM supply chains typically face. We’ll also give some best practices for how to clear OEM supply chain hurdles — and how Surgere can help you execute them.
An Overview of OEM Supply Chains
One reason that an effective OEM supply chain strategy can be so difficult to implement is the number of cogs in the machine. OEM supply chains consist of many players, like:
- Suppliers, who provide the raw materials, components, and subassemblies that OEMs need for production
- Contract Manufacturers (CMs), who specialize in specific production processes related to the product, to whom OEMs outsource part of production
- Distributors, who serve as intermediaries between the OEM and retailers and customers, providing warehousing, distribution, and delivery services
- End-Customers, such as individual consumers, businesses, or government entities; anyone who purchases the final product
In addition to multiple entities, OEM supply chains also consist of multiple processes, like:
- Procurement, which involves sourcing raw materials and components based on factors like reliability, quality, and cost
- Production Planning and Inventory Management, which plots production schedules according to desired inventory levels, reducing waste and storage costs.
- Quality Control, which implements regular checks to ensure optimal quality throughout production
- Manufacturing and Assembly, which converts all raw materials, components, and subsystems into a finished product
- Logistics and Distribution, which develops supply chain strategies and tactics to ensure that all goods are distributed, stored, transported and delivered with maximum efficiency
Taken together, OEM supply chains consist of a vast network of people and processes, all of which bring their own uncertainties to the table. That’s why having a comprehensive OEM supply chain strategy is a must.
4 Challenges in OEM Supply Chains
With so many pieces in play, OEMs face many challenges as they seek to build a supply chain ecosystem that can weather the storms. More on the solutions to these challenges later, but the main hurdles that OEMs face are:
- Supply Chain Disruptions. Natural disasters, transportation accidents, and raw material shortages are just a few variables that can disrupt a supply chain, and OEMs need a strategy that accounts for as many as possible. Otherwise, such unexpected events can result in choke points in the supply chain, resulting in stockouts, delayed fulfillments and lost profits
- Cost Management. Despite dropping some in 2023, logistics costs are still significantly higher than pre-pandemic levels. To address rising costs, OEMs are forced to strike a balance between having more efficient or responsive supply chains, cutting costs while maintaining their ability to adapt to market conditions
- Quality Control Issues. OEMs’ products are made from a wide number of raw materials, components, and subsystems. A defect anywhere in the chain can result in a lower quality product, so implementing rigorous quality control checks across the entire production lifecycle is a must
- Regulatory Standards. Tariffs, regional trade agreements (RTAs), and shifting global policies all create supply chain uncertainties, and they can happen with little notice. Staying current with the latest regulatory standards is essential for building resilient supply chains — and also for maintaining compliance
Labor shortages are also a key challenge for OEMs in logistics today, as vacancies and turnover are consistently high. Companies must invest in upskilling initiatives to help fill the void — and technology is essential as well.
Best Practices for an OEM Supply Chain Strategy
Despite so many challenges, there are several tactics that companies can build into their OEMs supply chain strategy to improve their resiliency while maintaining their cost-efficiency. Here are a fewbest practices in supply chain planning that you can implement today.
Establishing Robust Supplier Relationships
Working closely with your suppliers and CMs can elevate your supply chain in several ways. First, it helps ensure that their production ability aligns with your demands, reducing the likelihood of delays due to shortages. Close partnerships also foster clearer communication, so that you’ll be updated if delays do occur, giving you more time to respond.
If you want to build a more resilient supply chain, work closely with all CMs and suppliers, and treat every link as a part of your team.
Creating Risk Mitigation Plans
Whether it’s pandemics, natural disasters, or cyber threats, many supply chain disruptions lie outside OEMs’ control. Risk mitigation plans take an inventory of a company’s most pressing operational risks, identifying not only which assets would be exposed if each one occured, but how best to respond to them. They’re essential for maintaining your business continuity and a timely disaster recovery, and they create a blueprint for how your supply chain can respond to specific disruptions.
To create a more agile supply chain, create a risk mitigation plan, testing and re-evaluating it early and often.
Optimizing Inventory Levels
OEMs must walk a fine line in their supply chain. Too much inventory results in overstocks and wasted space, labor, and production, but too little creates shortages and delays.
In order to strike the right balance, optimize your inventory management processes with AI-powered supply chain software. Logistics solutions like Surgere possess predictive analytics functionalities, enabling more accurate demand forecasting based on historical data. The result is more optimized inventory levels, so that OEMs have enough products on hand to meet consumer demand without wasting labor, resources, or space.
Ensuring Robust Quality Control
Quality control is essential for reducing costs, minimizing defects, and shortening lead times, and for improving customer satisfaction. Improving product quality also reduces the cost of reverse logistics, as more satisified customers are less likely to return their products. OEMs may struggle to maintain their product quality with so much potential for error across the entire supply chain, so they must implement robust quality control metrics at every turn.
Close supplier relationships are especially important for quality control, as the extra communication provides greater visibility into supplier and CM processes, allowing for greater quality control.
Leveraging Technology for Optimization
Technology has become integral in modern logistics processes. Both cutting-edge hardware and software can be found everywhere on the warehouse floor, and they can help resolve many of the most common supply chain challenges, like:
- Supply chain disruptions, by better anticipating fluctuations with predictive analytics and avoiding bottlenecks by creating “plus-one” models
- Cost management, by reducing transportation costs with route optimization, and fulfillment costs with robotics and automation
- Quality control, by improving order accuracy with automated pick-and-pack tools, and improving product quality with non-destructive testing (NDT) models
- Regulatory standards, by integrating compliance regulations into inventory management software
While many of these innovations take the form of cutting-edge AI and robotics, they also require more established technology to implement them. For example, RFID and bluetooth devices provide the tracking needed to complete many automated processes, and IoT hardware provides the inventory data needed to make intellegent supply chain decisions. It takes both to optimize your OEM supply chain, which is why an end-to-end logistics partner is a must.
Transform Your OEM Supply Chain for Success
Supplier disruptions, political instablity, increasing customer demands — these are just a few in a long list of logistic challenges that OEMs face. By working closely with all supply chain partners, establishing comprehensive risk mitigation strategies, and leveraging technology that improves visibility while maximizing quality and efficiency, OEMs can endure the obstacles that complex supply chains can pose — and if they work with the right partners, they can even turn their supply chain into a competitive advantage.
At Surgere, we deliver the technology and expertise that drives our clients’ OEM supply chain success. We engineer, develop and deploy both the hardware software solutions that tackle OEM supply chain challenges head-on, empowering them with the data the need to make the right choices at the right times. From on-the-ground hardware like readers and RFID tags to AI-powered software with predictive analytics and process optimization functionalities, our solutions give you end-to-end logistics visibilty, strengthening your supply chain resiliency. If you’re ready to see how Sergere can help you build a smarter OEM supply chain strategy, contact our team today.
