In the first week of December, I penned a posting which I titled the Great 2009 Backflush in Global Supply Chains. In that update, I noted that the acceleration of inventory reductions across many industry supply chains was far more rapid than many of us have seen for a long time, spreading simultaneously and rapidly all the way down to the lowest levels of supply, including chemicals, petrochemical, and semiconductor suppliers. My observation at the time was that the rapid adoption of lean and just-in-times methods caused all tiers of the supply chain to react and contract at the same time. I also pondered how fast these supply chains would be able to ramp-up, when recovery returns.
It’s not everyday that the Wall Street Journal publishes a front page story that directly relates to developments in global supply chains, so I highly recommend you read today’s headline story, Clarity is the Missing Link in Supply Chains. I especially call attention to this article to my Supply Chain Matters readers residing in Asia, who often find themselves on the tail end of many supply chains.
This latest WSJ article outlines the experience of a CEO of chip designer Zoran Corporation. It depicts a series of events late last year where in just a few short weeks, business virtually stopped as OEM’s and contract manufacturers all reacted simultaneously to severe declines in business. The other premise brought out is that global recession has exposed a harsh reality that many supply chain participants seem to have all collectively hit the brakes at the same time. Other evidence provided was that in the final quarter of 2008, while overall consumer electronics purchases dropped 8%, product shipments fell 10%, and semiconductor chip shipments dropped 20%, pointing to a potential over reaction in turning-off the flow of supply. The other premise is that participants who reside two to three levels down in the value-chain possibly suffers the most due to either over-reaction or lack of visibility to true end-item demand in various markets.
While this story highlights a specific and noteworthy occurrence in the consumer electronics and high tech sectors, I suspect the same has occurred in other sectors of discrete and consumer goods manufacturing. Output levels of basic commodities have all been dramatically reduced, leaving starkly bare value-chains in many industry sectors, particularly those hit hardest by this recession.
The unprecedented “Backflush of 2009” will indeed provide our community many lessons for the future. Three of the most important lessons that I believe will serve as a future benchmark are:
- Do not dismiss the overall importance of having two-way, trusted supplier collaboration. A lack of trust manifests itself in an arbitrary or wholesale reduction in supplier orders, without providing visibility to what’s really occurring in end-item demand. Causing your suppliers to share unequal or excessive financial burdens does not lead to win-win, especially when the recovery of the economy returns.
- Technology, especially that related to global supply chain visibility, analytics, and simulation, does play a critical role in quickly sensing or responding to unplanned or unexpected events in the overall supply chain.
- Lean and just-in-time methodology continues to have benefits, but we need to understand as a community that these methods sometimes cannot manage very rapid or sudden changes in market demand. That’s when mangers have to manage across organizations and across businesses.