David Manners wrote a blog on Apr 28, 2011 titled ‘Why is the supply chain so opaque?’ on his Mannerisms blog, in which he states
The complexity of the electronics supply chain is such that, six weeks on from the earthquake, no one is sure what its effects will be on their businesses… For an industry which manufactures to tolerances measured in billionths of a meter, in which the researchers win Nobel Prizes and the salesmen have PhDs, it's anomalous that it can't forecast, plan, locate, track and measure its output.
The cause of the supply chain opacity referred to by David is the degree of outsourcing, coupled with ever increasing product portfolio complexity, which is due to mass customization and shortening product life cycles. Statistical forecasting is a 'large number' tool that requires long histories and frequent sales to achieve a high level of accuracy. Digital cameras have life spans of six months and less. Smart phones have a life span of 18 months and less ― and this is decreasing even as the number of models and model variants explodes. The shorter life spans means there is little history to go on and the explosion of model variants is greater than the increase in sales volume. It is no wonder that consumer electronics companies can seldom get forecast error, as measured by MAPE at a month lag, below 50 percent. Forecasting at the product family level only makes matters worse because this hides trends that are critical to determining component and capacity requirements, even though forecasting at the product family level may lull you into a false sense of security by reducing forecast error. Yet as stated by Research in Motion, the Blackberry owners, in a webinar hosted by SCMWorld on Apr 28, 2011, product portfolio complexity is required to compete in a consumer market with ever changing requirements. This is in stark contrast to many pundits who advocate reducing supply chain complexity, the primary cause of opacity, by reducing the product portfolio. I am the first to agree that a sound product portfolio analysis is something everyone should do, but outsourcing isn’t going away, neither is mass customization. So I say embrace complexity by providing visibility. But in today’s highly outsourced environment visibility must span several tiers of the supply chain from customer through OEM to contract manufacturer and on to the component suppliers. If you have distributors, then at least get a ‘sell through’ measure of demand, not just a ‘sell in.’ But access to data across the supply chain is not visibility. Without a manner in which to respond rapidly and profitably to actual demand, access to data adds nothing. But I agree, access to information across multiple tiers of the supply chain is a start. Being able to detect changes from the plan, understand the consequences of the changes on customer commits, capacity requirements, or component requirements, and evaluate alternative courses of action in both financial and operational terms quickly and effective is the clue to gaining visibility. Only this will reduce the opacity in today’s supply chains.
More seriously, I was focused on operational opacity. Apple is one of the most opaque companies, but who can argue against their success? And while I do not hold the 'captains of industry' blameless, isn't it really us, the consumer, who is responsible each time we purchase yet another item produced in China?
And the moral high ground can get really murky. There is a great article in the latest Economist about a backlash against China in Africa, in which it is pointed out that in South Africa the Department of Labour wanted shut down a Chinese owned factory because they were paying below the minimum wage. But the workers rioted because if the factory shut down they wouldn't have any work. Or social assistance. So what is tight in this case?
Nevertheless I applaud your vigilance. And I agree: It is all to easy to hide behind the "I didn't know" excuse of opacity.
I agree completely that:
"Technically, improved visibility is possible. It is up to supply chain managers to help make it happen."
I am looking for those leaders. It is a tricky issue to navigate with suppliers and customers. Do go the Procurement or Sales route. They will never see the benefit of closer collaboration. You have to get to Operations.
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