Economic recovery is welcome, but it carries its own set of challenges. An uptick in demand in the high-tech industry last year resulted in severe shortages of product. Cookson outlines three root causes of the problem. One was the extent of outsourcing in the electronics supply chain - "probably at the greatest rate it's been over the last 10 years." Second was the large number of "Lean" implementations, which stripped away buffer inventory and capacity. Third was the nature of those initiatives, which were sound in theory but less so in practice. Often they were accomplished "with more of a focus on inventory reduction than true Lean implementation," he says. "They left our supply chains too thin."

Cookson cites several examples of companies facing major parts or product imbalances, including those of Texas Instruments and Cisco Systems, the latter of which became stuck with huge amounts of inventory when demand fell off sharply in 2001. To realize supply-chain efficiencies without gutting essential stocks, he says, companies need to be practicing effective sales and operations planning (S&OP). That requires strong collaboration among supply-chain partners, who can jointly track shifts in demand. The absence of such an effort can sour the relationship between contract manufacturer and original equipment manufacturer, who tend to distrust one another's forecast. The result is "a lot of finger-pointing and blame to be passed around."

Companies must acquire an intimate understanding of the dynamics of their end-to-end supply chains - their products, product mixes, origins, volumes and demand patterns. In addition, says Cookson, they should implement Lean principles with a mathematical approach, not a "gut-check process for sizing inventory."

There are a number of new tools that can aid in the optimization of supply and demand planning. Cookson describes a new trend, whereby inventory is sold through a "virtual factory outlet," regardless of its location. The tactic removes the need to store physical inventory in multiple places, while offering a means of coping with shortages of time-critical materials. "It's going to change the way we think about inventory management," Cookson says.

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