The world of A&D M&A is facing a number of pressures: increased consolidation that has led to increased regulatory oversight, as well as supply chain shortages and bottlenecks with the capacity to impact production and profitability. This, coupled with skilled labor shortages, can affect mergers and acquisitions in an increasingly uncertain market. And for some companies, these challenges may actually be a reason to sell, to avoid continuously dealing with uncertainty. The right A&D investment banking firm can guide you as you manage supply chain bottlenecks.
Whether you’re hoping to get out now, planning a future sale, or just hoping to increase profitability while you assess what comes next, here are some strategies for protecting against supply chain bottlenecks.
Embracing New Technology
New technology can build redundancies into your manufacturing process, making the steps simpler and more easily replicable. It also makes it easier to measure cycle time, quality, and productivity—all key steps for getting through supply chain shortages. A&D firms should explore options for using technology to make manufacturing more reliable and efficient.
Automating as many processes as possible, along with working with manufacturers that use automation, makes manufacturing easier and reduces vulnerability to supply chain and labor shortages. The costs of automation have decreased significantly, making automation an increasingly viable investment. Moreover, automated processes tend to be more reliable than human beings, and are a great way to avoid safety issues and other potential liabilities.
The physical distance a supply chain spans is a major predictor of its reliability. Manufacturers who moved to offshore plants in recent years are finding these plants aren’t as attractive as they once were, and pose many reliability concerns. The changing tides of international relations and long distances products must travel can both lead to supply chain disruptions.
In-shoring and near-shoring are the new trends in supply chain management. Locally manufactured products can be more expensive, but they also offer greater security. Firms usually can’t return all manufacturing to the U.S., but moving even a portion of your supply chain to more local manufactures can act as an insurance policy against some of the most common supply chain bottlenecks.
Consider a Strategy Shift
Some companies have foregone localization in favor of shifting manufacturing south. Mexico is an increasingly attractive destination for manufacturing because of its closer proximity, low prices, and skilled labor. Owners shouldn’t be afraid of the unknown. Instead, consider experimenting with moving one aspect of operations south of the border, then assessing the results. A combination of transferring some operations to Mexico and some back home can offer greater insurance than any single strategy would on its own.
As is always the case in A&D, firms willing to innovate stand to win big as the economy shifts and continues to recover from the global pandemic. The pandemic showed that companies who are willing to innovate and pivot quickly to new ways of doing business can thrive even in uncertain times. The next chapter of the A&D economy will likely be written by companies that find ways to overcome supply chain bottle necks.