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Warning Signs in High Tech Supply Chains- A Need for Different Planning Capabilities

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A posting within the  21st Century Supply Chain blog peaked my interest to a rather interesting Business Week article, What’s Holding Back Tech, penned by Steve Hamm.. The article points out that spot shortages are showing up in a wide range of components within high tech related supply chains. The products impacted include digital camera modules, LCD screens and memory chips.  The reasons are common with other industry settings, namely that capacity and production levels have been dramatically lowered as the result of the ongoing economic downturn.

The article rightfully predicts that the coming months will prove to be rather tricky as procurement and supply chain planning professionals try to figure out when and how to ramp-up value-chain activities to take advantage of the pending recovery. Nobody seems all that sure of when a sustained momentum will occur in light of the very high unemployment levels that still exist in Europe and the U.S. Many suppliers are in survival mode, and they will be very reluctant to expand production without some form of longer-term assurances as to volume commitments.

I tend to also concur with the conclusion that when the economy gains more sustained momentum, it may take months to bring dormant factories to life since many workers have been let go, and need to be brought back.  Many factories in China have also either closed, or have dramatically cut-back in production activity that can support both expanding domestic as well as export production needs.

As many in our community have pointed out, the old ways of planning production based on historic sales forecasts or classic MRP planning cycles are not going to suffice in this “new normal”.  Instead, a reliance on demand sensing coupled with more rapid planning capabilities that are linked to various business or order planning scenarios will be more important tools for firms.  We may well be entering an era where worst case, best case, and prudent scenarios become the dominant means of planning.  Sales and operations planning (S&OP) processes will have to move toward an analysis of various business scenarios for achieving certain revenue, profitability or resource management needs.  Planning cycles that take weeks to gain answers or provide options will not suffice in this new era.

If there is one clear lesson that came from this past global recession is that changes in markets, and reactions to those changes come at unprecedented speeds.  Just one year ago, planners in multiple industries had no choice but to dramatically reduce inventory, and a global inventory backflush ensued at remarkable speed

Constant change, scenario analysis, agility in planning production and capacity planning processes are the skills and capabilities that firms will need to navigate in the  ”new normal”.

if you need some assistance in getting a broader understanding of these needs, send me an email: bferrari at blog1 dot com.

Bob Ferrari

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