Price instability, market volatility, and globalization are a few of the issues procurement professionals will face for the rest of 2012 and beyond, according to a recent study. And they'll be doing it with a marginal increase in resources.
The dramatic volatility spike in supply and demand that occurred with the 2008-2009 recession will persist for the foreseeable future, the market research firm Hackett Group reports (registration required). Companies participating in the study "said they expect changes of 25 percent or greater in input prices, customer demand, and talent availability" for the next two to three years, the firm said in a press release. These businesses also expect a 1 percent increase in operating budgets and a 3 percent increase in staffing.
Therefore, the research recommends that organizations develop greater "supply agility" -- supply base agility, contract flexibility and even the agility of the procurement function itself. At the same time, they should strive to reduce supply chain risk.
Easier said than done. According to the research, procurement has lagged other departments in becoming more global. Some procurement leaders plan to nearly triple their level of globalization within the next two or three years. This effort will involve both offshoring (for routine processes) and outsourcing (for higher-value work) -- two of the strategies already embraced by manufacturing.
Some electronics industry analysts would argue that both strategies have had limited success. OEMs that began outsourcing to gain manufacturing flexibility have gradually relinquished their control over functions such as product introduction. The supply chain consulting firm Charlie Barnhart & Associates recently reported that outsourcing had unintended consequences as the electronics market became more global.
The outsourcing industry, initially on a consigned basis, began as a means by which to "buffer" these peaks and valleys in the OEM’s manufacturing requirement, but soon gained greater responsibilities as the industry expanded. OEMs continued to shrink investment in internal capabilities and outsourced more functions, more often. Eventually they began to dismantle their internal operations and launched large scale divestiture programs. These actions coupled with the impact of globalization, and an unprecedented economic downturn post Y2K, created a supply-demand imbalance in the EMS industry (favoring the OEM) and prices for manufacturing services dropped precipitously.
This advantage was embraced by OEMs who quickly came to rely upon this recurring windfall to prop up their own eroding margins. So when EMS pricing ultimately hit the bottom of the pricing curve, they had little choice but to abandon their existing supply-base and transfer their outsourcing requirements to lower-cost solutions such as China. This left many OEMs without a supportive, low-cost, local alternative for the early and late stage elements of their product life-cycle, and many simply resigned themselves to off-shoring these requirement to suppliers whose value-proposition was little more than a high-volume producer of low-cost goods in some regionally remote geography. Result? A cumbersome, expensive, and ineffectual solution that still plagues many OEMs, who continue to struggle with a cascading set of front and back-end requirements that remain inadequately or totally unfulfilled.
OEMs are beginning to rethink this strategy, particularly as it pertains to product development, Barnhart says. Bringing some functions back in-house won't be cheap, but it won't be as expensive as many companies predict.
As procurement moves toward a global model, Hackett Group recommends that companies be prepared to adapt quickly to market changes. Globalization only adds to the instability of the market. It's more critical than ever for companies to understand how each region should operate, the firm says, while gaining the advantages that come from a global process operating platform.
One of the effects of global financial markets is certainly market volatility, but it seems to be on the hands of the companies to overcome it or at least reduce its impact to them.
The third strategy seems the only ideal, although it involves high costs. Companies should be in a position to understand the dynamics and interrelationships of markets and be prepared for any possible changes.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.