The Case for a Multiple Supply Chain System

If you want a modern supply chain, take a walk down memory lane and learn from past masters of the trade. Let me start with one lesson a senior executive at Cisco Systems Inc. (Nasdaq: CSCO) shared with me more than 10 years ago. A manufacturer, he said, should have more than one supply chain system even for a single product. I've since come to understand why.

I wasn't too surprised to hear the same last week from Douglas Kent, global vice president for Avnet Velocity, during an interview. Kent should know. His division of Avnet Inc. (NYSE: AVT), the global electronics component distributor and systems integrator, helps companies optimize their supply chain operations. Companies need more than one supply chain system to be effective and cost-competitive, Kent said.

If you're surprised by this then get ready for another shocker. The proliferation of multiple supply chain systems at manufacturing companies is sure to accelerate in coming years, driven by an ongoing move by enterprises to finesse their operations to use the most efficient and effective strategies. Today, the review involves whether companies should continue to offshore production, bring manufacturing back in-house, or even outsource it in high-cost Western locations. How about a combination of all these, depending upon the products, volume, and end-markets?

One single example will drive home my point. A company like Apple Inc. (Nasdaq: AAPL) has multiple supply chain systems for its varied products; the supply chain that supports the iPod isn't exactly suitable for the iPad, the iPhone, or Apple TV. Beyond this, the supply chain system that Apple will use to support the planned production of some of its Macintosh computers in the US will be markedly different from the one currently supporting the same products being made in China.

Even Lenovo Group Ltd. (Hong Kong: 992), the Chinese PC and information technology equipment maker, will find that the supply chain systems it uses in China will need to be modified when it starts producing computers in North Carolina, as expected in February.

The complexity is set to deepen because Western manufacturers that in the last two decades avidly embraced outsourcing and offshoring of production are rethinking this strategy. Companies like General Electric Co. (NYSE: GE) are moving some manufacturing back to the US and, in cases, in-house. This requires the development of a new set of supply chain system to support the new strategy.

We will in future see the adoption of a higher level of automation and the need for a vastly different labor force with higher talent levels. Some companies will be surprised at how much they'll have to change and how much they'll need to learn. Take Foxconn Electronics Inc. , the world's leading electronics manufacturing services provider, with multiple campuses of hundreds of thousands of workers in China. The company wants to open plants in the United States, but one core part of its China operation will not make it across the ocean. Americans working at Foxconn's US plants will prefer to return to their own homes and not to a hostel.

Here's a good tip I picked up from an industry pro: Forget about creating a unique supply chain system for your company. Instead create supply chains that can most efficiently support the product and markets under consideration. This may mean managing multiple supply chain systems if your company has many products or sells into many markets.

This shouldn't faze you. As I said, the concept of multiple supply chains emerged long ago, and it's even more valid today.