Podcast: Rethinking local manufacturing in a global market

RB: From the buyer's side, the manufacturer that's selecting the parts, you introduce a phrase that I wasn't familiar with, mental efficiency. And this is their default for their selection process of their suppliers. Do you detect biases that are shaping their efficiency in their mind is like toward cost savings or is there something else that the supplier, the machine shop has to understand, take into account?

CB: Yeah, so in terms of mental efficiency, what we mean is something that's quite specific and it's more fundamental than, for instance, a preference that's triggered by your environmental conditions. What we're referring to is bias that exists at a pre-conscious level, which is closer to the idea of habit, for instance, or the way that we've become accustomed to doing things. 

Now, where this comes from is the way in which we perceive tasks or challenges, so the way that we interpret problems to solve is a combination of information that we're receiving through sensory information, for instance, and our prior experience and our assumptions and our expectations that frame those. Now, this happens because our brains are like systems orchestrators. They're like air traffic controllers. They have a huge amount of activity to manage, but with very limited resource. And so we're wired to be as efficient as possible, so that when we see a task or a problem that we're very familiar with and where we've taken an approach in the past to this problem and it's worked for us, we're inherently more likely to interpret that task or problem with some of that history in mind. And that can lead us to filter out alternatives and frame the task or a problem in terms of how we've solved it before. 

Now, stepping back, if we've established that we have a need for a particular custom part and the last, for instance, three times that we did it, we sent it offshore because that's the way we've always done this and it worked out okay, then we're more likely than not going to see the other options for local providers. We'll just simply work through and say, this is the problem, this is the solution that's worked before, let's just go for it. Now, it takes more discipline and awareness to interrupt that and pause and say, well, maybe there's a local firm in my network that can do this.

Now, you mentioned there around incentives, for instance. I think this is an important piece too, because certainly, yes, there are certainly incentives in terms of cost, and that's always going to be a factor. I think more importantly, though, thinking about this in terms of the way in which we're interpreting the information is certainty. When we have a vendor that we already know, even if they're imperfect, you have more confidence than in a net new proposition. And that feeds into that idea of that concept of bias of effectively filtering out other options and sort of narrowing down and seeing the way that we've done things in the past and taking action based on that. Uncertainty involves more work to clarify, and we tend to be less comfortable with that. And that when we're thinking about uncertainty here, that's really starting to think about sort of local providers that we may not be familiar with. 

So that's why we say really it's a focus on reaching out as a manufacturer and making those connections, even if it's a commitment to reach out and connect with local providers, a local provider once a month, you know, turning up and bringing out a coffee, for instance, and really getting to know their business purely to learn more about the providers in your area. Because more than just simply being a nice person or being sort of part of the community, what you're really doing is you're collecting data points. You're starting to understand what's out there, and that reduces uncertainty. It helps to lower the overall hurdle to going out and engaging local providers and bringing them in.

RB: So are there capabilities that typically prevent local machine shops from, you know, creating that certainty for more manufacturers that they want to supply? Is there some way they can overcome that more confidently?

CB: It's a good question. I think it's less around specific capabilities because I think the challenge there becomes that if we talk about capabilities, there may be as many different answers to that as there are machine shops, for instance. But I think it's really more about reducing uncertainty by engaging with various providers in your local area. It's more about sort of getting an understanding of who they are, what businesses they're operating, what are their existing capabilities, and starting to get a sense of, well, if we had a job that's coming through, what would be the delta in terms of their existing capability and what they would be able to provide, whether that might be a gap in terms of expertise, for instance, or it might be a gap in terms of equipment. 

Now, then it becomes a matter of starting to work through and saying, well, could we as a manufacturer provide sufficient work to help justify an investment in building that capability? And from the machine shop side, it's starting to think strategically around that and saying, you know, is that worth our investment as well? And coming to an agreement between the two of those businesses. I think that's more of the consideration there. But it opens up the opportunity to start looking at, well, could we set up a longer-term relationship here? Is there a way that we could, as a manufacturer, work with this supplier to help build up the kind of capability that would help us differentiate and grow into a long-term partnership? So that's more sort of, I think, the gap is sort of understanding, like, where are they at the moment? What would it take for them to get where we need them to be? And can we, on both sides, justify that investment?

RB: How should a manufacturing business incorporate local suppliers without disrupting their existing or comfortable workflows?

CB: Yeah, that's a great point. My suggestion would be that from my experience, seeing less about workflow interruption, it's more about the onboarding process and particularly around procurement requirements, especially if a manufacturer is a larger firm. Certainly in terms of directly engaging, what we would recommend is looking at sort of pilot opportunities and testing out the relationship there first and working through, but less around sort of necessarily having to change workflows. But procurement hurdles can be really significant. Speaking as a small business, you know, certainly things like insurance requirements in terms of sort of having appropriate limits, appropriate endorsements and so on. can be a significant cost for bringing on a new supplier. So again, in addition to thinking about capabilities, this is also sort of a key consideration around from a machine shop side is looking at saying, is this, is the long-term benefit here going to be worth the investment in building in? So I think it's, workflows are one thing, but I think certainly taking sort of a pilot-based approach and taking into consideration some of the procurement hurdles there as well can be a key point.

RB: We've had emergence in the past decade or so of these digital marketplaces, digital platforms for engaging buyers and suppliers. What role does that play in what you're describing for our audience here today?

CB: Yeah, so when we talk about digital platforms, we might think of Xometry or Fictive or MFG.com. And these operate really well as digital matchmakers. Really, that's a classic digital platform model where you make it easy for buyers and sellers to connect. I think there are two challenges there. I mean, one challenge is the classic problem around adoption. It's one thing to sort of make these available, but engineers still need to log on and use it. So whether it's using a digital platform or building your own network locally, sort of adoption can be a challenge there.

But I think more importantly for the argument that we have in our article is that by their nature, they tend to be more transactional, which is really what we're pushing back on, that there's less investment in the connection between a buyer and a seller. It's really a connection between a buyer and an intermediary. And for instance, like at least one of these platforms promotes itself as an alternative to going locally. So it's not bounded by local vendors. They're an excellent option in terms of being able to connect with a very broad marketplace of machine shops. Part of the consideration that we have is saying the value of building local connections gives you, from a manufacturer's perspective, more opportunity to have influence and steer capability in a direction that you may need. It can be a great opportunity for local machine shops to build expertise. And overall, as a whole, this kind of becomes one of those, you know, rising tide lifts all boats, sort of situations where value is created and retained within the local community. 

So to sum up that point, really going back to the analogy around a restaurateur and their suppliers, there's a place for digital platforms to connect a broad range of suppliers, but it's a different proposition from building a local relationship-based network. Both can coexist and serve different purposes.

RB: How should a manufacturer and its supplier measure the value of making the switch to a local sourcing, local supply chain from transactional to relational engagement?

CB: Yeah, I think it's less about the value of transactional versus relationship than it is about the value of a marketplace model. The first measure I would consider would be total job cost as opposed to unit cost. So rework and delays or miscommunication and quality failures that don't show up in the original quote may show up in the final outcome. So what I'd consider would be to establish total job cost as a distinct quantitative metric and underneath that include inputs such as line item costs, costs associated with rework, costs associated with delays or project management costs, that may include managing communication and so on. So that way you're capturing the overall net benefit and you've got a true apples for apples comparison between your existing option if that involves going outside and working with local providers. 

But secondly, I think you'd also look for upstream benefits as well associated with a closer partnership. And this is more qualitative in nature. But here you're starting to think about the benefits, for instance, in terms of gathering more insights from a local provider that might tie into innovation, in terms of thinking around improvements that you've been able to make to the overall system you might be developing out that means that the job is completed faster or more effectively, or even hauling new projects that emerged from working with a local vendor. Part of the way I'd think about that would be in terms of building out an overall business case rather than necessarily hard numbers, but it also gives you a sense of the value that's created in having a local partnership there. So in short, I think you'd look at considering measuring the value in terms of broader holistic measures, and in that respect, it's a more strategic proposition.

RB: And that's one point to depart on. Really very well stated, Chris. I'm so grateful for your time today. I learned a lot more from you even today than I did in first reading and reviewing your article. I want to thank you for joining us. I want to encourage all our listeners to read that article at americanmachinist.com. The title is The Power of Local Manufacturing Marketplaces. Anyone wishing to contact Chris will find him at LinkedIn or at his own website, greenbeanconsulting.com.

About the Podcast
Great Question: A Manufacturing Podcast offers news and information for the people who make, store and move things and those who manage and maintain the facilities where that work gets done. Manufacturers from chemical producers to automakers to machine shops can listen for critical insights into the technologies, economic conditions and best practices that can influence how to best run facilities to reach operational excellence.

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