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Back to Basics – Are You Kidding?

Are US supply chain managers prepared for an economic recovery? That’s the question I was left asking myself when I listened to an {complink 7014|IDC} Webcast on January 19 that presented the top 10 predictions for the supply chain in 2011. IDC analysts said they see 2011 as a “back-on-track” and “back-to-basics” year.

Given the recent spate of slightly positive economic news, I thought I'd hear that manufacturers would be flashing some creative brilliance to tackle what promises to be a surge in orders of everything from smartphones and tablets to HDTVs and medical devices.

After all, the nation's unemployment rate fell from 9.4 percent in December to 9 percent in January. The economy grew at a 3.2 percent annual rate in the last three months of 2010, and the latest quarterly AP Economy Survey revealed that 42 private, corporate, and academic economists said the economy will grow 3.2 percent this year, compared with the 2.7 percent they forecasted in October. They also predict employers will create a net total of 2.2 million jobs.

Even IDC said there is a 75 percent probability of a healthy recovery in 2011. And yet Simon Ellis, IDC's practice director for supply chain strategies, told his Webcast audience that in 2011 we should expect to see supply chain management finding the cadence of growth while returning to strategies of a time past.

Expanding on this thought, Ellis said last year there was a renewed interest in sales and operation planning (S&OP), something that’s been around for two decades. He also said a lot of companies are considering business processes that they didn't get right prior to the recession.

What struck me about Ellis's analysis is that supply chain executives seem to be lacking in vision and still haven't developed effective plans that react to the changing dynamics of demand and supply.

I was left wondering if — as a result of extended supply chains, shortened product lifecycles, and an inability to predict consumer confidence, among other things — supply chains are so complex that it's impossible to forecast supply and demand. Is it too difficult to gain visibility or get a handle on supply chain information, either upstream or downstream, that will enable executives to react to changes when they occur?

Ellis recounted a conversation he had about a year ago with a supply chain executive who said he needed more analytics in his business. When Ellis tried to find out how more business intelligence would improve business operations, the executive said, “I don't know. I just know we need more analytics.”

Even more surprising is that Ellis said his conversations with manufacturers reveal that they are asking themselves basic questions regarding their competitive essence. These questions include: What does the company stand for? Is it product quality? Is it service levels? How do I manage fundamental business processes? “I think, manufacturers come back and have these kinds of conversations every five to 10 years,” he noted.

Other IDC predictions are that manufacturers will be looking at cost containment, and they'll be focusing more on responding to forecasts. This year, we should also see manufacturers that are engaged in sourcing parts in low-cost countries rethinking their global supply networks with a view to shortening lead times.

Additionally, 2011 promises to be a year in which there'll be greater adoption of mobile technologies, cloud computing, and social applications and platforms to manage the supply chain. The way I see it, US manufacturers are moving to a system that involves addressing new problems with old strategies, and this may not yield the results that global competition and an economic recovery demand — even if that recovery is a slow one.

The current circumstances offer US manufacturers and their supply chain executives a rare opportunity to apply groundbreaking technologies to better manage a more nimble manufacturing process, while providing products and services that their customers can believe in. Surely, supply chain executives can create a world-class supply chain for the 21st century. If they can't, US manufacturing may be further weakened for years to come.

12 comments on “Back to Basics – Are You Kidding?

  1. Ms. Daisy
    February 16, 2011

    Nicole:

    This article paints a real scarry scenario for the future of manufacturing in the US if the chain executives truly lack vision. This to me is like travelling with no road maps or no definite desitination. How can these managers have effective plans or the capabilities to react to the changing dynamics of demand and supply if they lack vision in their areas of manaufacturing.

    The lack of understanding of what a company stands for explains  why the executives are clueless on how business intelligence would improve business operations.

    I sincerely hope that this is a singular company issue and not the norm with most manaufacturers. Obviously these companies need to go back to the basics of managing an organization and not hide under the complexities of the supply chain.

  2. Taimoor Zubar
    February 16, 2011

    Does 'Back to Basics' refer to the fact that companies will be abandoning the technology used in supply chain and will go back to using primitive and conventional ways to manage their supply chains? If this is the case, I don't see how going back to 'basic' can bring about any improvement. In fact, abandoning technology may make things worse.

  3. Barbara Jorgensen
    February 16, 2011

    Hi Nicole,

    The electronics supply chain is complex enough that it doesn't surprise me that executives can't get a handle on demand forecasts. They never could, and it's unlikely they ever will. I don't think the problem is too little analytical information, either. The supply chain now is all about “risk management”–how much you think you will need, when you think you will need it, and how you hedge your bets if you don't need it after all. So there is no real forecast, it's a guess measured against a bunch of “what ifs” that usually don't happen. You can analyze the heck out of just about everything–whether the demand originated in Shanghai or El Paso on a Monday during a full moon–but you'll never be sure what that demand really is. Or means.

    I think that's what executives mean by getting back to basics–what is the demand, and how do suppliers meet that demand? If you look at that that way, it's really quite simple.

    Good article!

  4. prabhakar_deosthali
    February 17, 2011

    Today's electronics manufacturing has to accomodate the product introductions happening at a much faster rate than the time taken to establish the related  supply chain. Too many new products are getting introduced especially in the consumer market and these new products are making the earler products obsolete by default. So betting on the supply/demand forecasts has become as tricky as trading on a stock exchange. The supply chain professionals are on slippery paths and negotiating their way at the required speed needs a lot of skill.  With the new age communication tools and Enterprise wide systems it should not be diffiicult for the supply chain professionals to devise newer methods to effectively cope with this new scenario. The JIT methodology devised by Japanese Auto makers can become a handy tool for the Electronics manufacturers also in such scenario.

  5. Ashu001
    February 17, 2011

    Nicole,

    From your post,This paragraph made the most sense,

    The current circumstances offer US manufacturers and their supply chain executives a rare opportunity to apply groundbreaking technologies to better manage a more nimble manufacturing process, while providing products and services that their customers can believe in. Surely, supply chain executives can create a world-class supply chain for the 21st century. If they can't, US manufacturing may be further weakened for years to come.”

    Problem is that risk-taking does'nt come naturally to most execs.Its even more imperative than ever today,but they choose to play it safe…And Watch as more leaner competitors from Other parts of the country or even overseas grab their market.No matter what the media/Govt says,the Recession is not over-Not by Long-shot.This is the time when you need to play both Offense and Defense on the same Game.Right now majority seems to be playing just Defense….

    Regards

    Ashish.


  6. Ashu001
    February 17, 2011

    Daisy,

    You are not the only person who is alarmed by this conservative mindset that is today all pervasive amongst more North.American Execs.The only way for them to get out of this mindset is if their jobs are on the line-Which will happen if their incentive structures are aligned perfectly with shareholders and the whole company [Company makes money,you make money and vice versa].

    Once that becomes clear for the entire line of execs their behavior will start becoming slightly more adventurous than the staid mindset which is all pervasive now.

    Perform or Perish should be the new mantra….

    Regards

    Ashish.

  7. Ariella
    February 17, 2011

    Barbara, you make a solid point: You can analyze the heck out of just about everything–whether the demand originated in Shanghai or El Paso on a Monday during a full moon–but you'll never be sure what that demand really is. Or means. 

    Technology makes a lot of data available for analytics.  But all that analysis will not necessarily bring the businesses to the right answer when it comes to planning supplies that will meet demand. We do rely on past performance as a guide, but just as the prospectus on a mutual fund literature always warns, “past performance is no guarantee of future success.” 

  8. Hawk
    February 17, 2011

    Welcome back Ms. Daisy. We've missed your insight! Now, I've been looking forward to your take on some of the latest changes in the corporate world, including the CEO transition discussed by Barbara Jorgensen and especially the Nokia-Windows deal.

  9. itguyphil
    February 17, 2011

    Set to fail but I wonder if they can do something to stay afloat for a while. As the Google exec said “Two birds with one wing does not make a eagle” (or something along those lines. They also extended an invite to use Android in the future. Pretty much betting on a fail.

  10. Ken Bradley
    February 18, 2011

    Nicole,

    Jenifer Baljko and I have both blogged recently about the lack of innovation in the today’s supply chain and your article hits the subject again. In my search for innovation, I contacted Charlie Fine, Chrysler LGO Professor, MIT Sloan School of Management asking about current innovation.   He thinks we have been in a bit of a slow period for supply chain innovation but is interested in Li & Fung's value chain model, which is to have make-to-order supply chain for every customer need.   He suggested a book titled “Competing in a Flat World: Building Enterprises for a Borderless World“ by Victor K. Fung  , William K. Fung  and Yoram (Jerry) Wind .

     

    The search for innovation continues.

  11. The Source
    February 21, 2011

    Hi Ken,

    Innovation is a key ingredient in a vibrant manufacturing supply chain, and I appreciate your concern that innovation in this country is not at the level it should be.  One recent study from PricewaterhouseCoopers showed how important innovation is.  The report, published last month, found that emerging markets led by China, India and Brazil now threaten to erode America's lead in medical technology innovation.  This is not good news. 

    Ken, and all those who responded to my article, I enjoyed your comments.

     

    Nicole

     

     

  12. Tim Votapka
    February 21, 2011

    I like the line “perform or perish.” As harsh as it sounds, the truth is, organizations don't expand without meaningful production on the part of every member of the team. If you reward nonproduction, guess what you get – nonproduction.

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