Managing Automation - November 2008 - (Page 22)

[ COVER STORY ] pumping With the rising demand for oil in the developing world, we’re in a new regime.” Oil permeates today’s supply chains, Lapide adds. “Oil is in most products: around the product in terms of packaging, it is required to produce the product, and it’s how we move the product.” As growth continues to explode in developing countries such as China and India, demand for oil will push higher and higher, and along with it — absent creation of alternative energy sources — the prices. “I’m a big believer that oil will stay high,” he says. To mitigate oil-related risks and costs, manufacturers are adding more distribution centers and warehouses, holding more inventory at the point of demand, switching to transportation modes with lower fuel costs. They are moving production nearshore or even back onshore. They are postponing delivery of components and materials. They are tweaking packaging operations to ship only full palettes and truckloads. To enable these strategies, manufacturers are using software systems for transportation and logistics management, supply network modeling, and freight optimization. Rather than just avoiding high oil costs, the priWORST PRACTICES? ority is to create a supply chain agile These prevalent supply chain techniques have fostered greater oil consumption, according and resilient enough to turn on a to Larry Lapide of MIT: dime, allowing the organization to make the best decisions based on ● Just-in-Time Manufacturing. JIT has greatly helped plants reduce inventories, but it conditions at the time, energy costs often results in smaller, more frequent shipbe damned. Until more companies ments from suppliers. get there, however, fuel costs are ● Offshore Production/Sourcing. This megathe stuff of nightmares. feel the pain of the prices, but at least they do not ship globally for the most part. ADTRAN Inc., a $476 million provider of networking and communications equipment, manufactures 35% to 40% of its goods in Huntsville, AL, with the balance made by contract manufacturers in China. “We’re getting hit in all areas from the cost of oil, whether it be in plastics that we use for packaging or parts that we have shipped in via air,” says Tom Dadmun, VP of the Pro- “With the rising demand for oil in the developing world, we’re in a new regime.” — Larry Lapide, MIT gram Management Office for ADTRAN. “From a risk assessment perspective, we are looking at Mexico, Eastern Europe, Vietnam, and India as alternatives, as well as bringing it back home. But that’s not really practical to do. “Our products are dif ferent,” Dadmun says. “Some should be manufactured there and some here. There have been a lot of changes, but China still has a lot of benefits in terms of labor costs.” ADTRAN managers will keep assessing costs and variables by simulating different scenarios with the help of i2’s Demand Planner and Factor y Planner modules. Manufacturers need to invest more in software tools, ranging from supply chain management to supply network optimization and supply chain design, to freight optimization, modeling, and transportation/logistics management. Some manufacturers are behind in adopting systems to automate the decisions around transportation/logistics. “The energy situation is very good news for technology vendors,” AMR’s Aimi says. Two categories receiving a lot of attention in the past 12 to 18 months are supply chain network design and transportation management. “We did a study that shows only 30% to 40% penetration [for this type of system] in midsized to large corporations. We expect that to go up quickly. These companies are spending hundreds of millions of dollars on transportation/logistics, and they have been managing that on spreadsheets. That’s not good enough.” On the other hand, there is danger in viewing any software solution as a magic bullet, cautions Don Weintritt, global supply chain technology director at Dow Chemical Co. “Buying glitzy tools is not going to get you supply chain excellence. Tools are, at most, one-quarter of the value proposition. It’s the up The horrors are especially bad in sectors where the products have lower value yet higher density or form factor, such as consumer packaged goods. “The transportation cost prob● More Oil-Based Materials. More products lem is intensified in these verticals,” today are made of oil-based materials compared with a few decades ago. says Greg Aimi, director of supply chain research at AMR Research. ● Oil-Based Packaging. Packaging materials have shifted away from paper toward plastic. “This is about bricks, timber, paper, cases of Tide. They have low value ● The Rise in E-Tailing. Internet retailers use oil-intensive parcel shipping rather than related to their density/size. Fuel is truckload. a much bigger problem for them.” Asset-intensive industries, such as chemical and mining, are also hard hit. In other markets this is less true. In high tech, for example, often it makes sense to manufacture in Asia as that is where product assembly takes place. In pharmaceuticals, the product is small and light. Food producers ● trend has increased the distance that outbound finished goods travel, increasing logistics and transportation costs. BLACK GOLD Cycle-Time Reductions. Short product lifecycle industries that use overseas goods often use air rather than ocean freight, consuming more oil in the process. ma November 22 2008 Photos courtesy: Managing Automation

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Managing Automation - November 2008 Contents Take 1 At One-Year Mark, Wonderware President Focuses on Empowering Plant Operators Oracle Demos Fusio Apps, Reveals Delays Baan Founder Says BPM Will Replace ERP Emerson Talks Wireless at Annual User Group Event Merger Complete, Intercim Focuses on Collaboration Notes Cover Story: The New Supply Chain Reality Special Report: Keep Out Integration: The On-Demand Interchange Industries: Ending the Endless Waves of Paper Product Scan Advertiser Index Next

Managing Automation - November 2008

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