Randy Littleson writing in the 21st Century Supply Chain called attention to a recent McKinsey report, Building better links in high-tech supply chains. Randy notes that even though this report specifically comments on the high-tech industry, it provides good insights to all regarding why increased complexity in today’s global supply chains leads to significant barriers to collaboration. After reading this well written report, I also agree that it is worth your reading. Here is a link to the report summary.
I would like to share a few additional observations and insights based on my own experience in high tech supply chains.
The authors point out four areas that often prevent successful supply chain collaboration:
- Partner complexity and churn– namely that with products that generally have short life spans, in the high-tech situation, an average lifespan of nine months, there is a very small window to make crucial decisions about design, price, quality and supplier selection. Since everything happens quickly, building deeper collaboration becomes a secondary consideration. I would add another observation, that churn not only involves product churn, but people and organizational churn as well. With people changing roles and responsibilities in similar less than one year intervals, the ability to build collaboration based on trust and longer-term commitment becomes a fleeting challenge. In today’s global recessionary environment, this will especially be true since layoffs have the risk for compromising previous collaborative relationships with external partners, since the builders of the relationship are no longer a member of the organization.
- Silos and forecasts– The authors observe that OEM’s in many industries organize themselves around functional units, and send conflicting forecasts of demand or supply forecasts to their supply chain partners. The authors later point out that the first place to look are the overall management goals and bonus incentives that define monetary success for these individuals. If people are not measured and rewarded for external collaboration, than why expect that any significant win-win effort will occur.
- Poor quality of data– OEM forecasts often isn’t granular enough to be useful to supply chain partners. But the authors later point out that in some cases, “anticollaboration” with little sharing of information may actually be a legitimate approach when there is a risk for information leakage that is critical to product success. Last week, I observed the situation where information leaks from Apple’s suppliers could compromise that company’s future product launch plans, and in fact there were multiple stories pointing out the potential new features and launch date of the new iPhone. There are no easy answers here, and I believe that each company has to address and deploy its own collaboration strategy, based on its corporate situation. Boeing has learned this lesson the hard way.
- The mistrust spiral– High-tech OEM executives rightfully believe that they must guard information on their business plans and processes closely. The authors point out that this mistrust extends to ODMs, and I would add that it also includes contract manufacturers as well. The reasons are obvious. When I first interviewed companies who were sourcing manufacturing in China almost four years ago, the number one risk concern was the fear that product or process designs would be ripped-off by suppliers or contractors. That hasn’t changed since that time. But forward-looking companies have not stopped their efforts of collaboration, but instead exercise a select sharing of information relative to what can and cannot be shared.
Collaboration with external participants in a global supply chain is not easy, but then again, it must take place. Technology helps in facilitating time, distance, and complexity, but process remains the foundation.
This report grounded my thinking and I trust it will do the same for you. I encourage Supply Chain Matters readers to also share their insights relative to the areas addressed in this report.