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‘Demand signals’ are all the rage

The new catchphrase in Defense manufacturing is ‘demand signal’. 

Here’s an example from a story we published in Update last month, quoting Michael Gilroy from Center for Regional Economic Competitiveness (CREC) and Office of the Secretary of Defense before moving to CREC. 

Gilroy notes that “Replenishment means orders, and munitions orders run down through castings, forgings, energetics, machining and packaging — which is where a lot of Gulf Coast shops already work. That's a demand signal you can plan against.”

In fact, how small manufacturers plan for more Defense work based on ‘demand signals’ from buyers is becoming a hot topic in procurement circles. At issue is whether buyers should provide more actionable info, or whether suppliers must take on more risk in anticipation of new orders. 

The National Defense Industry Association magazine National Defense weighed in with a headlined article, JUST IN: Officials Tell Industry to Take Risks to Solve Supply Chain Issues, quoting industry players like Jai Malik, CEO of aerospace and defense engineering company Amca.

“‘There is a lot of discourse about what the government and armed services can do to bolster domestic production, and a lot of it comes down to creating a healthier supply base that is willing to take on risk and co-invest in production capabilities,”' he told the publication. 

“There are lots of people in the supply chain that are running these small companies that, frankly, are not investing any of their capital, really, at risk; they're not really thinking about long-term demand forecasting in a way that they should,” he said during the discussion. “I think we're doing a good job as a country, looking ourselves in the mirror and saying, 'How do we do better? How do we create a better demand signal?'

One supplier pushed back, commenting, “‘We’re already putting much at risk, waiting on 90-day terms, often NOT paid on time. We’re missing careful planning, responsible program start-up management, and outside capital investments in trade skill education to make rebuilding the supply chain possible. If you push the risk down you just risk “breaking” the vendors, making the problem worse.’ US Tool and Die Manufacturer.”

Most small companies manage risk conservatively. Small manufacturers need more signals. Primes and OEM’s: ball’s in your court. More on this topic in future editions.

Bart Taylor president of the Greater Houston Manufacturers Association. Reach him at [email protected].