A Complex Supply Chain Gets More Complicated

A New Year brings the opportunity for us to resolve to improve ourselves. Now is the time to lose those extra pounds, make an effort to be nicer to distant relatives, and take care of those nagging home improvements that we always seem to put off.

In our case, we resolve to be more critical of how we and other observers look at the high-tech supply chain. 2011 was not the easiest of years for supply chain practitioners.

The high-tech supply chain was front and center in the news last year — and not always for the best of reasons. As supply chains wavered in the wake of the tsunami in Japan, floods in Thailand, and global economic undertows, industry watchers fretted about the resilience and preparedness, or lack thereof, of high-tech companies' ability to weather the challenges that rippled across supply chains. But we resolve to take a closer look.

To be fair, it is worth taking a deeper look at the prevailing criticism. While many companies were caught unaware and without contingency plans by these and prior events, the vast majority of high-tech firms have made significant investments in building responsiveness and resilience into their supply chains. Is it possible to reconcile these investments with the challenges that the companies have confronted? To a great extent, major high-tech firms were victims of their own creation — an extended, multi-tier, global supply chain that serves multiple poles of economic growth and demand.

The challenges companies faced in the aftermath of tremendous shocks to their supply chain system are not necessarily symbolic of their failures, but of the world they shaped and in which they live. Those companies seeking to satisfy customers will move beyond simply being responsive to being “dynamic.”

Responsiveness may result from having a dynamic supply chain, but it is not a strategic or structural focus. Dynamic supply chains are all about outcomes: financial, strategic, and tactical. The tactical adaptability and financial results of a dynamic supply chain can only come from a relentless focus on a company's core strategy, be it customer service, technical superiority, growth, speed, or price competitiveness.

The public perception of supply chain breakdowns extends all the way to the customer's door. It also makes its way back to manufacturers' dock doors. The reason: Customers tend to closely correlate the quality of the reverse supply chain with their opinion of the quality of the maker of the product they are returning. With returns having increased by over 20 percent since 2007, according to new {complink 21|Accenture} research, manufacturers are feeling the backlash. But should they be? Our research indicates that nearly 70 percent of returned consumer electronics products have little, if anything wrong with them. Zero.

Perhaps this is the case because of the reliability of their supply chains. High-tech manufacturers may find themselves in an interesting situation in which their products may not necessarily be faulty (though faults certainly occur) but the quality of their return experience, coupled with the perceived lapse in product quality, may have a negative impact on the customer.

Perhaps the confusion around the performance of the supply chain is linked to a fundamental misunderstanding, both on the part of consumers and those of us in industry, of how complicated it really is. The rise of global supply networks has created unparalleled flexibility and cost advantages, but at the cost of tremendous complexity. High-tech companies have invested millions and will invest millions more to manage that complexity and further reduce their costs.

The question is: at what cost to consumers? They are, after all, more inclined to view the supply chain in the simple terms of “reliable” or “broken” rather than the multiple layers of sourcing, procurement, final assembly, sales and operations planning, transportation, and more in which supply chain professionals view the world.

As technology firms move into 2012, they face a renewed challenge to make the workings of their supply chains transparent to those who purchase their products. With customer perception swayed by both company performance and product quality, the supply chain will continue to be central to high-tech companies' success.

4 comments on “A Complex Supply Chain Gets More Complicated

  1. Barbara Jorgensen
    January 30, 2012

    @Masters: It looks like reverse logistics is the new logistics for 2012. Avnet, one of the industry's largest distributors, recently invested in several companies for their reverse logistics capabilities. Quick question: how does a b2b relationship (regarding returns, etc.) differ from a consumer relationship, if at all?

  2. prabhakar_deosthali
    January 31, 2012

    The forward logistics in any supply chain is a multi-link structure starting from the manufacturer to depot-distriibutor-sales outlet- to the end customer.

    But the reverse logistics does not work the same way. As soon as the sale is made the seller hands you the company's warranty card and says that all future responsibility of the support now lies with the manufacturer.

    The buyer is left with a call center number of the service agency of the manufacturer. the indifferent attitude of these call centers is the main cause of dissatisfaction for the end customers.

  3. Taimoor Zubar
    January 31, 2012

    “As technology firms move into 2012, they face a renewed challenge to make the workings of their supply chains transparent to those who purchase their products.”

    This is certainly a challenge and I think technology can immensely aid in this. If your entire supply chain is automated and linked to an enterprise system, it should be easy to have visibility of every aspect of supply chain at all times. I think this would help a lot in creating transparency of the supply chain.

    January 31, 2012

    I agree that a good company can become a great company by taking care of its reverse supply chain.  I am amazed however that you reckon 70% of returned products have nothing wrong with them.  This is quite shocking.

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