Managing Automation - March 2009 - (Page 20)

DEEPDIVE SupplyChains–MarketOverview represents the most significant risk. And they said the most common consequence of rising supply chain risk is higher production costs, followed by increased inventory costs and decreased customer service. Certainly the range of supply chain risk factors keeping manufacturers awake at night is on the rise. The worldwide recession, which has undermined credit, sapped consumer confidence, and threatened the survival of manufacturing giants such as General Motors and Chrysler, is the latest example. Manufacturers increasingly worry that the failure of even one such giant could undermine the health of key suppliers and compromise the supply networks of even otherwise healthy companies. And, considering the pervasiveness of the economic crisis, manufacturers say they are concerned about the health of suppliers even two and three levels down, not just in tier one. “In the current environment, we need to be able to see into our second- and third-tier suppliers because we are concerned with where the materials are coming from because we’ve seen multiple suppliers file Chapter 11 or 7 [bankruptcy],” says Bill Forbes, director of supply chain technology at defense contractor Raytheon. “We’ve never had to manage that way before.” Other potential risks swirl around manufacturers. Economic turmoil, besides threatening suppliers, makes it difficult to predict customer demand. Yo-yoing fuel and energy costs make it impossible to predict production and transportation costs. Likewise, rising labor costs in once low-cost countries, such as China and Brazil, make it difficult to optimize supply networks. And social and political turmoil — such as the recent terror attacks in Mumbai, India — threaten supply networks in the most unpredictable ways. If that weren’t enough, tougher environmental and trade regulations increase the risk that suppliers will run into problems or that a critical shipment will languish on a dock somewhere. “All of these risk factors are shocking the system,” says AMR Research analyst Noha Tohamy. “Manufacturers don’t know what’s coming next. As a result, most are trying to account for risk in more explicit ways when making decisions about their supply chains.” Besides facing a wider range of potentially damaging risk factors, many manufacturers find themselves more vulnerable to potential supply chain disruptions than ever. Three broad trends are to blame for that. First, many manufacturers have spent the past few years moving production offshore, often outsourcing it. While this has reduced labor costs, it has also lengthened lead times and reduced supply chain visibility, making it more difficult to recover from disruptions. Globalization has also made it more difficult for manufacturers to know as much about the capabilities of their suppliers as they once did. Second, many manufacturers have spent the past few years leaning out production and supply processes. In many cases, they are operating with much less inventory and safety stock, leaving them more susceptible to supply disruptions. “The kinds of supply chain risks now facing manufacturers weren’t as heavily considered when companies first decided to launch lean initiatives,” says John Simrose, a principal in Deloitte Consulting’s supply chain practice. “Now, we see many taking more of a balanced approach. They want to get to one-piece flow, but they also want to carry enough buffer inventor y so a disruption doesn’t bring the whole plant down.” The third trend leaving manufacturers more exposed to supply chain risk, experts say, has been a widespread move to strategic sourcing. In the pursuit of lower material and testing costs and better intellectual property protection, manufacturers have significantly reduced the number of suppliers with which they work. Adtran, for example, has cut its suppliers from 400 to 150 in the past few years. And the ASIC chip at the core of the company’s communications products is single-sourced. But that makes Adtran more dependent on key suppliers and more exposed should a supplier run into a problem. “That means we have to put more risk avoidance analysis into working with those suppliers,” Dadmun says. TAKING STOCK All of this has caused manufacturers to take a long, hard look at how they consider risk when making critical supply chain decisions and whether they can respond quickly when risks become real. In many cases, experts say, manufacturers haven’t liked what they’ve seen. North Carolina State’s McCormack conducted a study of whether manufacturers are satisfied with their supply chain risk management capabilities. Perhaps not surprisingly, he says, “Nobody was happy with the approach they were taking. Risk detection, for the most part, was too late, and reaction was too little.” Indeed, Managing Automation’s reader poll suggests that manufacturers are just beginning to put significant, coordinated resources ma March 20 2009

Table of Contents Feed for the Digital Edition of Managing Automation - March 2009

Managing Automation - March 2009 Contents Take 1 Sober Outlook, Cost-Cutting Techniques Dominate at Automation Conference Sale Canceled, i2 Searches for Its Focus Accenture Unveils a Service for the Factory Floor Solar Is Bright Spot for MES Player Eyelit Other Industries Outspent Auto on Robots in 2008 Integrators to Play a Bigger Role at ILS Technology Notes Deep Dive Supply Chains Reader Poll Technology Directions Expert Q&A User Resources Special Report Transformation Product Scan Advertiser Index Next

Managing Automation - March 2009

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.