Managing Automation - March 2009 - (Page 27)

DEEPDIVE SupplyChains–ExpertQ&A Dynamic SUPPLY CHAIN MANAGEMENT Is Key To get an expert’s view of the state of managing risk in supply chains, MA Senior Editor Stephanie Neil e-mailed with Greg Cudahy, global managing director in Accenture’s Supply Chain Strategy practice. include visibility tools, automated decision-making capabilities, and customs and trade management software. It’s also about how you use the tools. Many manufacturers have sophisticated network optimization tools, but most use them in a strategic fashion, periodically reengineering their manufacturing/distribution network, typically every one to three years. Yet, these tools must become an operational capability, continuously looking at optimal ways to refine the network in response to new products, emerging markets, changing customer base, etc. Q: What are the business barriers to managing risk in global supply networks? There are so many! Outside the general economic realities, there are two major business barriers: internal barriers (directly controlled) and network barriers (under varying degrees of influence by the company). Most near-term benefits are likely to come from addressing internal barriers (functional siloing, misalignment of metrics/incentives, technology gaps, investment prioritization, skillsets). Q: What is the state of global supply networks in manufacturing? There is no doubt that risk has gone up dramatically in the new millennium, but also supply chains are expected to run tighter than was expected a decade ago. These risks have been piling up as supply lines become extended, market entrants take major share seemingly overnight, products are proliferating and lifecycles shortening, innovations are commoditized in record time, commodity swings are massive in a short period, and customer expectations are continuously increasing — all at a time when financial and geopolitical stability have taken major body blows. It’s certainly a time when supply chain professionals can add value. It is best to define the risks in a spectrum from unpredictable unknowns (acts of nature, terrorist attacks, market dislocations) over which a company has no direct control, to predictable unknowns (supplier failures, forecast variability, execution shortfalls), which a company can influence, if properly prepared to do so. Research has demonstrated that the vast majority of exposure is in the area of predictable risks that are poorly managed. In fact, globalization has reopened risks — especially supplier reliability and lead-time variability — that were not such a challenge when primary suppliers were just a short hop away via car or plane, and language, culture, and international trade law were minimal considerations. A: What are the top three business drivers impacting the state of the supply chain? First is volatility. We have entered a state of permanent volatility, and the entry of hundreds of millions of new participants into the free market system each year, combined with technologies that amplify market movements at the speed of light, ensures that the ride will not get easier for any single player. Second is the increasing role of commodities in driving decision making. Even with the recent drop in commodity prices, labor is a decreasing component of cost of goods sold. Access to raw materials and proximity to customers will be increasingly important to avoid unnecessary handling, transport cost, and safety stock. Third, government-influenced financial factors, notably currency strength and tariffs, will challenge supply chain decisions. Q: A: A: Q: Where will manufacturers be three years from now when it comes to supply chain risk? I’d love to say that risks will diminish, but the likelihood is exceptionally low. We have no idea what the global marketplace will look like in three years, or even one. That’s why supply chains must become more dynamic. A few critical things are likely. First, while the intensity of many risks may increase, the number of risks a company must manage will remain relatively steady. The progress of management theory in the area of risk, combined with the impact of globalization and the credit crunch, means that more people are aggressively tracking risk factors. Execution will become the key differentiator, not just awareness. Second, we will likely move to a global procurement model biased toward “hemispheric sourcing” as risk factors are built into total-cost-of-ownership analysis. Mexico and Brazil (for North America) and Turkey and parts of North Africa (for Europe) will play larger roles. Onshoring may increase. Finally, companies that fail to become more dynamic will increasingly fail. I A: Q: How can technology help? A: Technology plays a major role in creating what is necessary to survive, and even thrive, in this environment of unprecedented volatility: dynamic supply chains that can be continuously and cost-effectively adapted to changing market conditions. Today’s environment requires operational and decision science technologies — what we call the “adaptive layer” — that allow a company to respond more quickly to events that cannot be reliably forecast. Technologies 27 March 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

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