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Predictions from Supply Chain Gurus 2012 – Part 1

As promised, here is my take on the Predictions from Supply Chain Gurus for 2012. You can read the article at SC Digest :  Predictions from Supply Chain Gurus for 2012

First up the Gartner Boyz:

Like others, Gartner is projecting a movement of manufactured goods overseas back nearer to US soil, if not within the country itself. It projects that "By 2014, 20% of Asia-sourced finished goods and assemblies consumed in the US will shift to the Americas," which of course can mean Mexico, Honduras, Costa Rico and other nearby sourcing locations.

The drivers? First,they says that many companies initially underestimated the true total costs of long supply chains offshored to Asia, miscalculating inventory costs, greater issues with product quality, lost sales or discounted prices due to long lead times, IP theft, and more.

They also note that some of those issues may soon be exacerbated in some countries (meaning China) as more and more production will be consumed in Asian markets, not Western ones.

Sorry, guys but I predicted this way back in 2006-07. Don’t believe me, you can read it for yourself here: Surviving the China Rup Tide – How to profit from the Supply Chain Bottleneck and The Intimate Supply Chain – Part 1 amongst other posts. The simple point is that none of these supply chain moves (no matter who the guru predicting it is – not even me) are holy writ but they’re very much context writ.

And what explains this shift?

"Customer demand for service excellence and increased product choice at competitive prices is
driving brand owners to reassess the value delivered by their supply networks," the analysts say. "Sacrificing lead time for reduced unit cost will be insufficient to satisfy this customer requirement."

For certain segments of the supply chain, a "nearshore" strategy will make a lot more sense, they believe.

Come on, does this hypothesis pass muster? Isn’t there a recession on still – unofficially but have you taken a look at the purchasing power of the middle class lately?

Production to scale is a great idea when demand is always pointing upwards on a growth chart but it’s a sorry idea if your demand falls off a cliff or in this case becomes as volatile as fickle fig leaf.

Further,

Gartner says that "After billions of dollars spent on ERP, many companies still lack the timely, accurate and network-based data that can guide fact-based, timely supply chain decisions." It also notes that companies are collecting in one way or another vast amounts of information, much if not most of which is not being used effectively for improved decision making. "Big data" is the term associated with the opportunity to better mine this information and extract more value out of it, to the great delight of data warehouse. analytics, and storage vendors.

Now, remember what I said just a few posts back about the inevitable entrance of Big Data into the enterprise world – this is no big secret and my advice to you is to get on the bandwagon now. That’s also the reason why I started my Big Data blog because there’s no escaping this elephant in the room.

This provides a perfect segue into a curious coincidence wherein this firm came into my crosshairs – Lokad. Now, I’m not very familiar with the technology but that will be the focus of my  next blog post as I investigate what they do. The gist of it is that they’re trying to get better forecasts by digging through Big Data.

Stay tuned for that update…

 

Why Apple makes iPhones in China and Why the US is screwed?

Two recent articles, one being the retelling of another, delve into some of the reasons why Apple makes iPhones in China and by implication not in the USA. The original article was from the New York Times, How the US lost out on iPhone Work and the retelling was recounted in This Article Explains why Apple makes iPhones in China and why the US is screwed.

There is no article about China which doesn’t recount some of the following snippets:

When one reads about these working conditions — 12-16 hour shifts, pay of ~$1 per hour or less, dormitories with 15 beds in 12×12 rooms

For Mr. Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.”

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

That’s because nothing like Foxconn City exists in the United States.

The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day.

And lastly,

The answers, almost every time, were found outside the United States. Though components differ between versions, all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

Summarizing, Chinese firms can scale up and down rapidly i.e. they have flexibility that the Chinese government and populace are willing to allow. Something that cannot be obtained stateside in whatever shape or form. The key takeaway is that it is not only scale but the willingness and ability to go either way with it. In the US, one finds that scale is directed one way towards growth but scaling down is an arduous, acrimonious and drawn out affair if it ever happens.

So here’s the first key to Smarter Manufacturing – Flexibility and Scalability.

About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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