Building Consistency Into Your Supply Chain

Consistency, speed, and dependability should be "givens" in the modern supply chain. High-level ERP and MRP platforms have been enhanced by software than can analyze, plan, and execute just about anything. Market pressure and experience have weeded out many of the underperformers in supply chain services (particularly during the last recession).

Yet competition in the electronics industry continues to be fierce, so even the survivors in the market are being challenged daily.

Any company that purports to provide supply chain services has to meet a vast checklist of criteria, including consistency. In addition to providing the correct order on time, how do companies establish, and therefore build, a reputation in consistency? In its annual ranking of top supply-chain performers, market research firm Gartner ties consistency to resiliency -- another supply-chain metric that Velocity will be exploring in-depth in July.

In order to be resilient, Gartner concludes, supply chain leaders have to consistently meet, and outperform, their industry's key performance criteria, particularly during periods of volatility. The research firm said further in the report:

Beyond absolute financial performance, the ability of a company to consistently post industry-leading results year after year, despite demand and supply disruptions, is an indicator of resiliency. Predictability is not only highly valued as a supply chain characteristic (for example, did your company get the order delivered when it said it would?), but it's also highly valued by financial markets.

Among its Top 25 Supply Chain Leaders for 2012, Gartner tracked the companies' return on assets (ROA) -- a measure of growth -- versus the variability of supply chain demands in its industry. Leading companies were able to grow even during periods of disruption. Interestingly, high-tech's results weren't stellar: top performer IBM Corp. (NYSE: IBM), for example, grew only 0.5 percent for the three-year period Gartner tracked. What's notable is the baseline: everyone else didn't grow at all, the company said.

What also stands out is how low the bar is in some industries. For example, consider high tech: Although IBM's 0.5% average growth doesn't seem like a number to get excited about on the surface, the median three-year growth for this industry group was actually negative at -0.1%. And even though there certainly were plenty of high-tech companies that significantly exceeded the industry-median growth number, there weren't that many that did it with better-than-industry consistency.

Gartner didn't draw any conclusions regarding the high-tech supply chain, but it did tie financial stability -- an external measurement -- to industry-leading companies. Within companies themselves, consistency is gauged by a variety of metrics, the most important being customer service.

Market research firm IDC during 2011 surveyed manufacturers, distributors, and service providers in the high-tech supply chain with a particular focus on Asia. Not only is Asia the fastest-growing region in electronics, but during 2011 it experienced two natural disasters that exacerbated the volatility of the supply chain (the earthquake/tsunami in Japan and massive flooding in Thailand).

"One recurring theme in the results of this survey, and indeed in other regional and global surveys that IDC Manufacturing Insights has put to field, is the growing concern about risk management and the ability of supply chain organizations to react quickly to system shocks," IDC reports.

IDC finds that there are several aspects of the high-tech supply chain that contributed to stability even in the wake of disasters. Upstream collaboration -- the practice of working closely with suppliers -- was cited as the leading "secret weapon" in the high-tech supply chain. The next sets of attributes, in order of importance, are:

• A variable supply chain cost structure
• Supply chain resilience through risk management
• A greener supply chain
• The ability to optimize transport by product line
• Outsourcing the supply chain
• A comprehensive postponement strategy
• Returns/reverse logistics services

Customers, however, should not just depend on their partners to measure and maintain consistent levels of service. Customers can, and should, hold their partners accountable. There will always be unforeseeable events that will throw the global supply chain out of balance, writes Gerry Fay, global chief for logistics and operations at Avnet Inc. (NYSE: AVT) in an article for EBN. (See: Disruptions, Imbalances & Insane Supply Chains.)

Avnet, a global electronics distributor, recommends its customers perform regular assessments of their supply chain strategies:

• Determine supply chain goals based on an outside-in customer view
• Determine the tradeoffs between efficiency, agility, and responsiveness
• Identify the primary sources of risk in your supply chain
• Assess the likelihood of occurrence
• Estimate the financial impact
• Prioritize your supply chain based on the likelihood and impact
• Develop a strategy to mitigate or reduce the likelihood of disruptions
• Review supply chain strategy periodically to assure continuous improvement

Supply chain partners should be able to match, if not exceed, the goals determined by such audits. Like most aspects of the supply chain, consistency is a complex measurement that can vary from customer to customer. In some cases, on-time delivery may be the most important factor; in other cases, a regular reduction in cost is the litmus test. In electronics, financial stability and the ability to collaborate with suppliers and customers top the list of "must haves" for a partner that can help offset the volatility of a global marketplace.