Kevin Meyer

Life and leadership at the nexus of lean and zen.

Blinders of Supply Chain Complexity

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Another day, another article trying to figure out how to simplify global supply chains… without realizing that the easiest way to simplify them is to eliminate the "global" aspect.  But what more would expect from our friends at McKinsey?

The supply chains of high-tech companies are globe-spanning marvels. Over the past 20 years, looking for ready sources of components, lower-priced labor, and talented designers and engineers, these companies have ranged throughout the world. In a highly competitive and fast-moving marketplace, they have sought to maximize their strengths and flexibility as products change rapidly and prices continue to fall.

Yes, wonders they are.  Too bad they don't work very well.  Why is that?

But the sprawl and complexity of such networks have made it harder to manage end-to-end operations smoothly. Many technology companies are grappling with volatility and disruptions across their supply networks, and eliminating waste from duplicative efforts is an ongoing challenge. As product life cycles shrink, we see inventory buildups in the supply chains of some companies, while others cope with rising distribution costs, on-time delivery problems, or delays in getting new products to market.

The horrors!  Inventory buildup?  Why would anyone expect that when adding a few thousand miles to be traversed by huge container ships?  On-time delivery problems?  Why, who in the world would think that would become a problem when moving manufacturing a few time zones away?

So what's the fundamental problem, according the brainiacs at McKinsey?  Why, "collaboration" of course!  Why the heck is that?

In fact, high-tech companies have let complexity undermine collaboration in their supply chains: they aren’t working as closely as they could with their supply chain partners—sharing information or streamlining processes—to smooth out volatility and eliminate waste.

For a host of reasons rooted in the way they are organized and compete, their executives have been less than enthusiastic about pursuing the benefits of collaboration with their supply chain partners.

I'll try to keep from laughing at the obvious for a moment, and let's dive a little deeper into McKinsey's "analysis."

Closer collaboration in the high-tech industry is an elusive goal. Difficulties arise from the specific nature of high-tech competition and markets, from cultural barriers, and from organizational flaws. In our work with clients, we find that problems in four areas often prevent successful supply chain collaboration

[1] High-tech OEMs need hundreds of components from a broad range of global suppliers, which themselves lie at the center of even farther-flung supply chains comprising second-tier companies that make subcomponents.

[2] OEMs in many industries organize themselves around functional units. But in high technology (and other assembly industries), units such as manufacturing, sales and marketing, and product development often send conflicting forecasts of demand and production to their partners.

[3] OEM forecasts often aren’t granular enough to be useful to supply chain partners. Typically, OEMs set broad targets across a number of product lines rather than provide details on expected unit sales for specific products. That combined with rapid product obsolescence makes getting a fix on true demand difficult.

[4] Given the intense and unpredictable nature of competition, high-tech executives often believe that they must guard information on their business plans and processes closely. This perceived need for confidentiality—OEMs reason that since their suppliers provide parts to competing OEMs, shared data isn’t secure—directly affects suppliers.

Ok… sounds like a lot of problems.  But I'm sure the reduction in labor cost somehow makes up for all of that.  Yeah, right.  Are you sure the root cause is "collaboration," or should you ask "why" a couple more times and end up at "traditional accounting" or "outsourcing is always the answer lemming mindset" or…?

What was the total cost again?  How does that compare to the total cost of working with domestic suppliers, if not your own internal operations?

Comments

  1. Kevin:

    Couldn’t agree more. They need to add in a few more Why’s to figure out the root cause instead of the “knee jerk” response. I’ve seen every industry push solutions that don’t see the heart of the problem, and they just pop up in the future.

  2. Well, one area that could be improved in the currently hurting (about 30% sequential sales decline) semiconductor business is the long lead times. I believe it takes on average 12 weeks to get a batch of chips through a fab. So when demand drops off suddenly (like it just did), the chip companies are left holding a whole bunch on inventory.

  3. During the next round of consulting buzzword solutions, companies will be finding “green solutions” to their supply chain problems. This will consist of shortening supply lines by using internal and domestic suppliers and reducing the carbon emissions associated with long supply trains. It will be hailed as proof that going “green” pays for itself.

    It will actually prove that you can declare yourself a hero by screwing things up and then finding non-related reasons for making the needed corrections. Off-shoring was cost effective if you ignored the shipping cost involved. Now greening will be cost effective because it eliminates the shipping costs.

    Maybe what we need is a formula for measuring the “Stupidity Costs” of a business unit. It could be based on number and degree of violations of Demings 14 Points or the Lean 5S. Then Executives could be heroes by “Going Smart”.

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