The following posting can also be read and commented upon on the Kinaxis Supply Chain Expert Community web site.
Many industries have their unique planning and supplier risk challenges but we often observe that the high tech and consumer electronics sector seems to take the top position is terms of volatility and challenge. It seems that comedian Steve Martin’s classic line of “wild and crazy” is an appropriate description for those planners and commodity procurement teams dealing with day-to-day high tech product fulfillment needs.
These last two weeks have brought acute reminders to these challenges. Toshiba announced that a brief power failure that occurred at its prime NAND flash memory chip production facility could impact the future output of production by as much as 20 percent in the next two months. NAND memory devices are common in the production of tablet computers, smartphones and digital music players. According to a Wall Street Journal article outlining the incident, (paid subscription may be required) a sudden drop in utility supplied voltage that only lasted .07 seconds significantly impacted complex production equipment within the Yokkaichi facility, which is Toshiba’s prime NAND memory chip production facility. Toshiba is the world’s #2 producer, including long-term supply commitments for Apple, and accounts for one-third of global NAND revenues. This potential glitch in production could have other implications in terms of spot-market pricing and the availability of NAND components over the coming quarter. Industry players competing directly with Apple will be especially challenged since many have been scrambling to bring alternative consumer choices to market, and must now find alternative means of short-term supply.
Contrasting the unique but critical NAND flash memory shortage is a potential glut of LCD liquid-crystal-displays used in high definition televisions. Leading LCD supplier Samsung Electronics indicated that is ratcheting down the production at its various LCD factories to respond to building global inventories. According to a separate Wall Street Journal article, Samsung’s LCD division saw a sharp drop in operating profit margin in the third quarter, amid weaker sales. Number two LCD producer LG Display has also seen a drop in operating profitability because of building inventory and weaker panel prices. Global inventories of high-definition televisions are unusually high during this upcoming holiday season and many OEM’s have been aggressively promoting products to help clean out these finished goods inventories. If demand were to again surge later in 2011, industry players would have to deal with this current decision to decrease capacity output of LCD devices.
It may seem to some readers that some of us in the blogosphere have been over-hyping the importance of faster planning cycles and more responsive sales and operations planning processes. The occurrence of a .07 second disruption in power again reinforces how quickly planning can change in a volatile world. Issues of supplier risk and supplier dependency are both important reminders for the need for more responsive supply and demand planning in 2011 and beyond.