A posting within the  21^st 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

There was a rather interesting article, On the rebound, featured in the August 15^th edition of The Economist Magazine of which supply chain strategic planners should take note.  This article points out that Asia’s emerging economies are recovering much more quickly that those in other parts of the world, but raises the question of longer term sustainability of this momentum.  I would argue that this momentum also implies an investment in more sophisticated supply chain planning and analytical decision-making tools.

What I found to be of most interest in the article was the Barclays Capital chart (Back on track) that indicates that emerging Asia’s  industrial production levels have jumped to an annualized rate of 36% growth in the second quarter, and output has regained levels achieved prior to the onslaught of the global economic crisis. The authors cite China as the prime influencer of this trend, where industrial production has risen 11% in the past twelve months.  The U.S. on the other hand, continues its decline in industrial production activity, which reinforces the premise that the emerging Asian economies, and Asian based supply chains are now leading in the overall recovery.

There was previous speculation among economic forecasters that emerging Asia economies that were highly dependent on export-driven markets such as the U.S or Europe would lag in the recovery, or at least front-end recovery in these countries such as the U.S.. The opposite has occurred thus far.

The authors make the observation that Asian firms, similar to other global firms, aggressively cut production to below the level of sales in order to shed excess costs. Different than the situation in other regions, these firms now need to reopen factories.  The authors point to industry observers that note that the current pick-up of activity simply reflects the rebuilding of inventories in anticipation of increased demand.  South Korea’s private consumption rose by an annualized 14% in the second quarter, and in China, consumer spending in urban areas is up by almost 11%, mostly driven by government stimulus incentives directly related to consumer spending.  The article notes: “…South Korea, Singapore, Malaysia, Taiwan and Thailand have all had a government boost this year of at least 4% of GDP.”  The argument is that stimulus has been more effective in these countries because Asian households were not burdened by huge debts, and that it was a lot easier for emerging economies to find worthwhile infrastructure projects.

While all of these trends are noteworthy, I would raise a couple of caution flags for supply chain planners.  First, similar to the current debate around government stimulus programs that motivated U.S. consumers to trade in their clunkers for new automotive purchases, the question of longer-term sustainability of demand is a very valid one, and pertains to Asia as well as other countries. Firms will need to continually sense for sustainability in product demand, or a structural shifting of demand.

Second, Asia has a particular problem related to over capacity in certain industry sectors that existed prior to the recession.  If Asian factories begin to crank-up demand too far ahead of real demand, that overcapacity problem will lead to price erosion and a need to find more outlets for goods, potentially leading to another condition of too much inventory and productive capacity.

On the subject of the threat of inflation, the article’s authors point out that growth in the overall labor supply as well as sustained productivity levels will need to combat future inflationary pressures across Asia. I would argue that implies Asian based supply chain organizations will need to step-up their investments in IT tools that can provide global-wide supply chain visibility, as well as timelier decision-making relative to overall inventory and production levels.

If Asia does lead the West in the global recovery it must do so with smarter supply chain business processes and supporting technology that can rapidly sense and respond to both domestic or export driven market changes.  This is not necessarily a call to large-scale IT investment, but rather investing in tools that provide more insights into the timely balancing of supply with actual demand.

 Bob Ferrari

Supply chain specialty recruiting firm TopGrading Solutions called my attention to their recent survey related to how long unemployed supply chain planning, purchasing, and consulting focused candidates will wait before taking a job with a lower salary.  Since TopGrading Solutions specializes in candidates in these specific sectors, there was unique survey base to test current thinking.

The results indicate a potential split in opinion, but that the majority of these professionals realize the overall worth of their specialized supply chain skills.  The majority of the contributor candidates surveyed (over 50%)indicate that even with this unprecedented global recession, they would wait from 2 months, to at least 4 months, before considering a cut in their previous annual salary. Only roughly 17% of survey respondents would consider a cut in annual salary in their first 90 days of job search.  Executives on the other hand view salary as one of other components in searching for a new position. 

Many supply chain professional and industry groups, as well as this author, have pointed to the increased gap for broader, and more experienced supply chain professionals.  Last July, The Global Supply Chain Professional Development Committee, a sub-team to the Supply Chain Operations Council (SCOR), commissioned AMR Research to conduct a research study that outlined the current extent of this skills gap, which affirms the view that gaps exist today and into the future. So in my view, talented supply chain professionals should continue to recognize their current and future worth in the skills marketplace.

One other worthy observation cited by TopGrading Solutions specialty recruiter Jason Breault, is that certain companies seem to be now recognizing that their teams were spread too thin during recent cutbacks, and that the job market for certain specialists may be beginning to bounce back. 

Let’s continue to hope that this continues.

 Bob Ferrari

This is the third in a series of Supply Chain Matters posts that responds to a challenge among the blogsphere community of supply chain bloggers to offer some thoughts on the seven grand challenges for supply chain management for the next ten to twenty years. The notion of seven challenges was motivated from a recent Gartner research theme that outlines The Seven Great Challenges for IT.

In my part one and part two posts on this topic, I outlined what I believe to be the first five grand challenges, namely:

-Ubiquity of Portable Computing Leading to Sensory Networks

-True Supply Chain Business Intelligence and Decision Making Tools

-Managing the Explosion of Data and Information Needs Involved in Global Based Value Chains

- Managing Supply Chain Risk Management on a Global Basis

- Resolving of Who Assumes Ownership for the Extended Supply Chain?

In this post, I will outline my view of the final two challenges that make-up the overall seven grand challenges for supply chain in the next five or so years. You will obviously note that the final two challenges relate to changing skill needs.

Challenge Six- Articulating the Value and Consequences of Supply Chain Directly to the C-Suite

Supply chain professionals have been frustrated by the need to better connect the consequences of the tradeoffs in various functional supply chain strategies to the overall value to the business or potential impacts to the balance sheet.  This is similar to the ongoing challenge that the IT community has in relating to the need for identifying the business value and financial consequences of investing in IT.  Challenge six is an individual challenge to all who reside in our community, whether in sourcing, planning, manufacturing and distribution operations, transportation, or any other related function.

In past years, multiple interviews, surveys, and group discussion uncovered a general frustration among SCM participants that senior executives just “don’t get it”.  Supply chain professionals rightfully believe that there are critical tradeoffs among the objectives for driving down overall costs vs. needs to improve service levels to customers, establish relationships with key suppliers, insure security within the supply chain, or improve agility in a rapidly changing business environment.  Benchmarking data of the top leaders in supply chain management note that the organizations can track improvements or potential; strategies directly to financial or service value. But this challenge objectively lacks two missing tenets, a lack of consistent skills, and a lack of well understood communication to the C-Suite.

To be fair, a lot of progress is now being made within various industry settings. Consultants, academia and industry professional organizations such as APICS, CSCMP and SCOR have provided a positive helping hand, and I for one, believe that the community is now on a more positive track. What has also helped is the reality of past decisions.  The effects of global sourcing decisions with limited information related to the effects of these decisions are now an education to senior management on the importance of having a common understanding of the potential implications or tradeoffs of these decisions, as well as having continuous mechanisms for better mitigating potential risks. An increasing trend toward more centralized supply chain structure has also reinforced the need for broader analysis and decision skills.

More and more supply chain professionals are taking the initiative for expanding their individual skills, including broadening their general supply chain business and process awareness skills, and their ability to both speak to and more clearly demonstrate the various tradeoffs and/or implications of decisions.  Clearly, educating management on the benefits of adopting Sales and Operations Planning (S&OP), Strategic Sourcing, Lean and Demand Management methodology has begun to help, but I believe more work remains.  Technology has also helped, and there continues to be better tools available for quantifying risk, simulating various supply chain business scenarios, or providing more-timely sensing of an exception event before it becomes a significant problem for the business.

This challenge to members of our community, as well as to senior executives, is to continue to take responsibility and sponsorship of initiatives that broaden both individual, organizational, and cross-enterprise team skills that focus on the ability for assessing, articulating, and managing the contribution of supply chain management to the business.

Challenge Seven- A Global Shortage of Talent and Skills in Supply Chain Management

As Gartner and others have pointed to an increased shortage for software development and programming skills, a similar skills grand challenge can be expressed regarding the long-term need for talented supply chain management professionals on a global-wide basis.

Under the initial sponsorship of the Supply Chain Operations Council (SCOR), an ongoing multi-company effort is underway to address an industry-wide concern regarding the need for recruiting and retaining of supply chain talent over the next five to ten years.

As many in our profession are well aware, we have reached an era of the globally integrated value-chain, where supply and demand needs can come from every corner of the globe.  Of further concern is a potential lack of uniformity among various global-wide academic institutions in the teaching of broader curriculum and the preparation of local  new talent.

The origins of this initiative began in 2005 when IBM initiated a partnership with a select group of universities focused within supply chain management, requesting help in building a globally accepted competency and management career framework.  Since that time, companies such as Boeing, Intel, Molson Coors, Procter & Gamble and Whirlpool have joined in broader sponsorship of this effort.  Thus far, this industry diverse committee has completed a survey where 300 plus companies among seven different industries have provided input on supply chain process and skill needs required within their organizational teams. Perhaps readers have participated in this survey.  I posted an update on the initial findings of this survey (Supply Chain Skills Gap) back in May.

One of the observations of this survey reinforced the stated need.  “There are concerns about (supply chain) resource stability and the value of employees understanding of country-level idiosyncrasies, which only be quelled by building sustainable, local talent.”

 The ultimate goal of this challenge is to generally overcome longer-term skill and talent needs, as well as forge partnerships with industry and academia for attracting more numbers of talented students and professionals into the supply chain management profession.

A Final Note

My purpose in penning this three part series is to stimulate both thought and discussion, with the goal of providing clarity and knowledge-sharing within various supply chain related organizations.  I encourage Supply Chain Matters and other associated blog readers to add their commentary to this articulation of challenge for the community.

You can also contact me directly with your comments at bob.ferrari@theferrarigroup.com.

 Bob Ferrari