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Warning Signals

Everything looks a bit crazy right now, doesn't it? Oil and energy prices are fluctuating. The ongoing worldwide debt crisis is having a chilling effect on government spending. There are shocks in the global stock markets. Japan is recovering from its disaster. Youth riots and public unrest are spreading from North Africa to the Middle East to Europe. And there are concerns about how road, railway, port, and other transportation upgrades will be funded if regional budgets thin out even more.

If you think the electronics segment will be isolated from these evolving events, think again. In more ways than one, they will collide head-on with near-term supply chain and logistics management plans.

On one extreme side, companies will want to make sure their distribution warehouses are secure and out of harm's way. That warning is a few days late for {complink 5114|Sony Corp.}, which was already beaten down by last spring's earthquake and tsunami in Japan and ended up with another black eye this week. One of its distribution centers in London was burned down during the riots there.

Supply chain managers will also want to check out the increased merger and acquisition activity in the transportation and logistics industry, particularly within the shipping and passenger air verticals. First-quarter deal activity in this industry jumped nearly 15 percent from the same quarter last year, according to “Intersections,” a quarterly analysis of global M&A activity in the transportation and logistics industry by {complink 7085|PricewaterhouseCoopers International}.

This kind of uptick probably warrants at least a few phone calls to shipping companies to get a status check on their businesses and to review partnership criteria for all shipping partners.

M&A activity is worth following for another reason: It could be a tipoff for infrastructure improvement trends. If governments continue to slam the brakes on spending and put major capex projects on hold, businesses may well step in and step up deal negotiations, PwC said. “Continued interest and activity in transportation infrastructure remains a key driver for M&A in the sector.” And the momentum is expected to continue as regional and national authorities grapple with the need to make transportation infrastructure improvements while pursuing fiscal austerity.

From all indications, austerity is an item that remains on a worldwide wish list. Talk of a double-dip recession, very jittery stock markets, and softening international demand and manufacturing outputs will once again give pause to electronics companies. Sales forecasts, currency translations, and product planning could soon be swept into another very uncertain business tornado.

Given the big-picture chaos unfolding in the world, now is as good a time as any to take another look at the supply chain dashboard and figure out how to steer around the roadblocks and speed bumps popping up.

8 comments on “Warning Signals

  1. Nemos
    August 11, 2011

    “Given the big-picture chaos unfolding in the world, now is as good a time as any to take another look at the supply chain dashboard”

    I believe that the best way to overpass the economic crisis is to remain calm. And that includes people that have a small amount of shares in the stock market, people that work in big finance companies and our politicians.The extended nervousness in the market make us to take the wrong decisions.  

  2. Eldredge
    August 11, 2011

    It seems like it's having a more chilling effect on private spending. It seems like government spending restirctions are being resisted far more.

  3. Daniel
    August 12, 2011

    Jennifer, as you know there is an economic instability in the market due to the recent happenings in US economy. More over the oil and gold pricings are adding fuels to such crisis. In such situation, are you foreseeing any direct and indirect effect for the electronic and supply industry in pricing and stoking? Just now only the industry regains from recent tsunami in Japan and global recession before that.

  4. Wale Bakare
    August 12, 2011

    Eldredge,

    It seems like government spending restirctions are being resisted far more . I think, you have a point. Investors are unwilling to response to the capital market and the whole financial climate looks harsh and becoming unbearable. 

  5. Barbara Jorgensen
    August 12, 2011

    Interesting post. The supply chain continues to be dependent on physical facilities such as warehouses and shipping avenues, which will always be affected by weather, political upheaval and disaster. I've always found it fascinating that so much time and money are spent on the theoretical aspects of the supply chian when a physical disruption can render the best practices nearly useless. It's always worth thinking about…redundnacy is one answer but not the most financially viable.

  6. Jennifer Baljko
    August 12, 2011

    Hi

    I wrote a longish reply this morning, but apparently didn't hit the post button. Let's see if I can remember the key points.

    Jacob – I'm no expert in analyzing the immediate effect gold and oil pricing will have on supply chain activities, but it's obvious that someone is going to have to pay for any fuel surcharges. Probably, like always, it will be divided along the supply chain, and passed along to the consumer.

    Eldredge – Governments may have resisted significant spending cuts to date, but if we fall into a double-dip recession, I don't suspect that strategy to be sustainable. Municipal and state government budgets in the US at least largely depend on the income and property taxes they levy from their communities, and their ability to issue bonds for major capex projects. If unemployment remains high, wages stay frozen, and home mortgage default and foreclosures remain a norm, city, regional, and national governments will have to look at their dwindling tax revenue and re-assess what services can be supported. It doesn't help either that the S&P cut municipal bond ratings this week. The full story on that is here: http://finance.fortune.cnn.com/2011/08/11/how-safe-are-your-munis/

    And, Barbara – you're absolutely right. Physical disruptions play a huge part in supply chain replanning, but they are so unpredictable it's hard to factor in. For instance, who would have seen London's riots escalate so quickly in just a couple of days?

     

     

  7. FLYINGSCOT
    August 15, 2011

    Barbara makes an excellent point in that comparatively little is spend on disaster prevention for physical assets compared to, say, data storage or IT infrastructure.  In IT we need to ensure that we have minimal impact from equipment failure locally right up to the building burning down.  However when it comes to inventory and manufacturing we have all our eggs in one very vulnerable basket.

  8. itguyphil
    August 15, 2011

    flyingscot,

    Securing the physical assets might require building new components into existing data centers or moving the assets to more secure areas and other planning.

    I think the cause for that is, with the boom of virtualization, cloud computing, and near instantaneous recovery and migration abilities using these tehnologies, it becomes more cost-effective to protect the 'logical' assets compared to the physical.

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