A significant amount of restructuring and repositioning has taken place within the supply chain industry over the last few years. Industry dynamics, natural disasters and market forces continue to put pressure on the manufacturing industry to improve supply chain processes; global competition and supply chains have leveled the playing field; and manufacturers and retailers compete not only on product superiority, but also on value and operational excellence. To maintain and excel, global companies are realizing that elasticity is not just a pricing concept - it is now relevant to all operational factoring within a business.
And although corporate financiers have pushed lean supply chains as a way to control costs, perhaps it's time supply chain chiefs pushed back a little.
The lessons from Japan's earthquake made something painfully clear for global manufacturers: it was time to reexamine the lean-supply strategies that had become ubiquitous across the industry. And the result has been somewhat of a rollback of two decades worth of systems and infrastructure set up to develop tightly integrated supply and inventory operations. As the earthquake in Japan and the floods in Thailand have impacted supply chains worldwide, many organizations are starting to push for solutions that deliver better visibility and control around supplier location and product availability.
Consider the following announcements:
• DSA LLC, the privately held company known for making the heaters that warm football players on the sidelines, recently relocated its production to Bowling Green, Kentucky, from China, citing shipping costs as a major factor in this move.
• Emerson recently moved part of its appliance motor production operations to the U.S. and Mexico from Asia, in part to offset rising transportation costs.
• Chino, California-based Bertolini Corporation Inc. is opening a manufacturing operation in Lawrenceburg, Tennessee, creating some 150 new jobs within three years of the operation's start-up.
• Tesla Motors Inc., a Silicon Valley automotive start-up company, announced in September plans to build a $250m facility in San Jose to manufacture electric sedans, bringing 1,000 new jobs to the area.
Manufacturing companies keep their supplier ratings high by retaining current contracts and bidding on new business. Aging, disparate infrastructures, lack of visibility into the supply chain, and the risk of external (natural or political) upheaval all work to undermine business operations and jeopardize on-time delivery of products and product-related data. Moving operational facilities closer to home is an emerging strategy to hedge against these risks.
At the same time, the economics of manufacturing in low-cost countries is changing. Rising Chinese wages and artificially strong currency rates have altered the tide of production and slowed the pace of shifting manufacturing to Asia. Products that do not ship well, or have relatively low labor content, can be produced more efficiently in the aggregate (i.e., total lifecycle costs) via a regional production footprint. North America, Europe and South America are all becoming more attractive based on a market distance proximity equation. The key question supply chain chiefs must answer is: What factory and logistics network - including transport costs and customs payments - will allow your company to meet forecasted demand for products most cost-effectively?
For example, the transportation and logistics industry has moved beyond the days of LTL vs. OTR, air vs. ground, and ocean vs. rail. Whether via freight forwarding or contract, self-built or third-party logistics, transportation and logistics operations are taking on more and more customer requirements to mitigate risk. And that means being able to adhere to a variety of tougher - and in some cases non-standard - requirements in order to maintain customer satisfaction levels.
In today's competitive global environment, most production departments (including IT) are working on projects that involve direct return on investment criteria (e.g., cost savings, revenue growth, operational productivity, IP protection, etc.). Given the current pace of change, and prospects for future change (e.g., multi-tier and cooperative supplier networks, aftermarket distribution networks, etc.), data agility and data visibility are the two hot buttons moving forward. The goal is to adapt rapidly to the need for production changes (location, source, destination, customs requirements, etc.) as infrastructure and systems are modified and updated to meet pressing business requirements.
Let's look at an example from the automotive industry. Consider a scenario in which a logistics company must be able to understand and meet delivery requirements imposed on a Tier 1 supplier by the original equipment manufacturer for not only the parts themselves but for the data required to deliver the parts in a timely fashion. In this scenario, there can be significant penalties involved if the data and/or the parts are not delivered in the correct time frame. For instance, if a load of component parts is sitting on a dock waiting to be picked up, and the truck is delayed because of an error in data processing (in the advanced ship notice, bill of lading, manifest, etc.), the clock is ticking. If the logistics company doesn't have visibility into the problem, and can't fix it in real time, their customer may fail to meet SLA requirements as a result. And that's not a happy customer.
Supply chain efficiency has always mattered, but now the "down and distance" element has become primary for helping customers stage and move their products around the globe. Efficient operations require flexibility and experience in managing the distance (time to travel), transportation costs (fuel charges), and regulatory requirements. Adjustment pressures on commodities and labor costs resulting from the recent recession and the Euro Zone credit crisis require ever more business agility. If you step back and connect the dots, it's apparent that the need for adept, agile management of the exchange and context of internal and external data should be at the core of priority planning for both manufacturing and IT projects. Real change is coming to the way the supply chain industry stages and moves product; and, just as importantly, to the way we secure, deliver and exchange product-related data with the many parties who need it. Clearly, robust file management and data integration technologies will continue to play a foundational role in the industry.
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