Advertisement

Blog

Supply Chain Worries Grow at Tech Firms

Now that we may be seeing the light at the end of this recession, technology companies are apparently getting concerned about their ability to keep up with an improving economy.

For each of the last five years, professional services firm BDO USA LLP has examined annual 10-K filings of the 100 largest publicly traded technology companies in the United States. The firm carefully reads the “risk factors” section of each 10-K. Although many standard risk factors are repeated year after year, the BDO team counts them, notes the order in which they are listed (this can change with circumstances, as companies are supposed to list the most important first), and analyzes the language the company uses.

“We look at exactly what they say and how they are saying it,” says Aftab Jamil, partner and national director of the Technology and Life Sciences Practice at BDO.

The level of concern over ability to execute strategy has skyrocketed among these companies over the last three years, rising from 27 percent in 2009 to 93 percent this year. Much of this concern has to do with supply chain issues. Jamil and his team attribute the dramatic rise to two major factors. One is the increasingly global nature of business, which makes companies more susceptible to natural disasters or political disruptions around the world — a risk made apparent this year in the wake of the earthquake in Japan.

Specific concerns about disasters, war, conflicts, and terrorist attacks rose from 55 percent last year to 81 percent this year. Note, however, that these numbers are based on levels of concern before the big quake. (The study looks at 10-Ks filed in April, which are prepared in early February based largely on what happened the previous calendar year.) I have to wonder whether that percentage is now standing at 100. (Click here for the full report.)

The other factor behind the rising level of worry is that we're starting to come out of the recession. Those 2009 percentages reflect what was going on in 2008. That was the deepest point of the recession, and most companies were in “hunker-down mode,” says Jamil. Their only real strategy was to preserve cash and survive. There's not much risk in executing that strategy, and therefore a low level of concern. But now that the economy has improved, the pressure is on companies to move aggressively to capture more market share, enter new markets, and expand their business. That means the business depends more on executing a dynamic strategy, which entails more risk, particularly when it depends on a supply chain that's constrained or easily disrupted.

Among the other growing worries among tech firms:

  • US and foreign supplier/vendor concerns and supply chain issues, up from 75 percent last year to 86 percent this year
  • Predicting demand, up from 63 percent to 85 percent
  • Inability to maintain operational infrastructure and systems, up from 42 percent to 68 percent
  • Price and availability of raw materials, up from 19 percent to 34 percent
  • Balanced inventory, up from 30 percent to 57 percent

“Next year I'll be very surprised if we don't see all of these risks go much higher,” notes Jamil.

Those numbers will reflect the lasting impact of the Japanese earthquake, an historic event that has caused huge disruptions for semiconductor, consumer electronics, and auto manufacturers, and reminded the world that disasters can happen any time without warning.

8 comments on “Supply Chain Worries Grow at Tech Firms

  1. eemom
    May 31, 2011

    There is good news here …  economy is recovering which is causing a large part of the concern over meeting demand.  As far as natural disasters and/or political unrest, we've certainly had our share this year, which will cause companies to formulate back up plans to ensure continuity of service and minimize any disruption.  While companies are feeling pressured now, it will hopefully cause them to prepare for a better, more prosperous tomorrow.

  2. eemom
    May 31, 2011

    There is good news here …  economy is recovering which is causing a large part of the concern over meeting demand.  As far as natural disasters and/or political unrest, we've certainly had our share this year, which will cause companies to formulate back up plans to ensure continuity of service and minimize any disruption.  While companies are feeling pressured now, it will hopefully cause them to prepare for a better, more prosperous tomorrow.

  3. Tam Harbert
    May 31, 2011

    I agree. After all, as Andy Grove said, “Only the paranoid survive.”

  4. Himanshugupta
    May 31, 2011

    Atleast this kind of worry is a good sign from economy point of view. Japan's disaster taught us some key lessons and hopefully we will learn how to deal with the unexpected disruption.

  5. Daniel
    June 1, 2011

       Tam, you are right. Now the economic growth is upwards and industries are on its path from the recent recession. But scarcity of products is affecting the supply chains. Since most of the electronic components are coming from Japan and neighboring countries, the recent Japan disaster had affected the supply chain very much.

  6. DataCrunch
    June 1, 2011

    Where there are concerns, there are also opportunities.  Based on the data presented by BDO, there seems to be a greater demand for better technology tools and systems within a company’s supply chain, specifically in supply chain execution and supply chain visibility for a more adaptive supply chain network.

  7. cjazh
    June 2, 2011

    I would add that developing the talent within the supply chain is also increasingly important.  They ultimately have to do the planning, executing, and manage the risks.

  8. stochastic excursion
    June 2, 2011

    Definitely outfitting the organization with visibility tools, along with multiple contingency plans for executing a strategic course of action, are necessary in the kind of soft recovery we're seeing.  I think the key concept here is fault-tolerance, like a plane designed to be capable of flying even when several engines have been lost.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.