Sunday, February 07, 2010

7 top phrases - exciting new concepts for 2010 in supply chain

In the Supply Chain Shaman, Lora Cecere had highlighted seven phrases as representation of exciting new concepts for 2010. In my mind there is one other one that is worthy of that list.   

For those that are focused on transforming supply chains, Lora’s article is a great read. If you need a summary, here are the phrases that she highlighted.   
  1. Digital Consumer 
  2. Gravitas 
  3. Ontology 
  4. Stochastic Optimization 
  5. Sentiment Analysis
  6. Supply Chain Black Hole     
  7.  Trickle-up Innovation
Out of this one, “sentiment analysis” resonated with me the most. The recent fiasco at Toyota, in my mind, is primarily a failure to understand the sentiment of the customers and hence responding inappropriately to the issue.

There is one other word that is worthy of this list – “Systemic Resilience.”  I like this definition for “Resilience” from Merriam-Webster – “an ability to recover from or adjust easily to change.”  The resilience of the organization is affected not just by their ability but also by ability of the whole system to adjust to change – particularly the ability of the extended supply chain including the suppliers and outsourced manufacturers. Hence the phrase "Systemic Resilience."

The demand picture and the financial picture are going to be unsettled for the next few months as we recover from the "great recession."  On the demand picture side, nobody can say with conviction what type of recovery we are going to have with a significant unemployment and persistent government deficits across the globe. On the financial picture side, the banks and other financial institutions are being circumspect about lending and that has squeezed the working capital for many of the suppliers to the level where a significant few of them are close to or operating in bankruptcy. Those suppliers' ability to respond to significant changes are going to be very small. Given this situation, companies need to get a measure the resilience of the suppliers. How will their operations, and more importantly, their suppliers’ operations are going to respond to various scenarios – very sharp uptick in demand, slow uptick in demand, flat or slowly eroding demand, sudden dip in demand etc.

Companies like Caterpillar are understanding the importance of shoring up the resilience of the extended supply chain and are proactively reaching out to their suppliers to understand how the tier 1 and tier 2 suppliers will respond to changes. They are also asking and understanding what the suppliers’ exposures to weak markets like automotive are. These exposures could risk the suppliers’ viability when least expected. Though I do not agree with some of the things that Caterpillar is doing as part of this exercise, the overall thrust of what they are doing is an essential step that a lot of companies have to take. Caterpillar, Walmart, Kohl's, and a few others are stepping up to provide creative financing to the suppliers, by financing the suppliers' accounts receivables. This helps the suppliers reduce the need for working capital by getting paid for their shipments sooner.

All of these, I think we are going to hear a lot more in 2010 about initiatives at the OEMs to shore up their “systemic resilience


Add your thoughts on the importance of focus on "systemic resilience" in 2010. 


Karthik

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