How to define a supply chain

IDC group vice president, Bob Parker, has noted that there has been a lot written and discussed in the business media about the impact of Japan’s tragedy on markets. He adds, that the term “supply chain” is being used quite a bit, occasionally by someone who understands what it means.

“Our interest, as always, is in how well or poorly supply chain technology supported company needs in dealing with the unexpected event,” said Parker.

Here a few of his recommendations:

· Modernize supply chain response management. More mature industries like automotive are taking much too long to evaluate the impact of supply shortages. To hear company officials they should have a good handle on the situation “in several weeks” is a huge red flag. The expectation isn’t to fully anticipate the event, but to respond much more rapidly as we saw in the high tech/electronics segment.
· Go deeper with supply risk assessment. While the electronics industry responded quickly, the mitigating tactics were only one or two levels upstream in the supply chain. To illustrate the point, a key adhesive in electronics manufacturing has been severely impacted by the circumstances in Japan and may ultimately cause more disruption than flash memory. It appears the response models didn’t account for a supply item this far up the supply chain.

· Reassessment of global supply networks. As demand becomes more and more global, supply networks must follow. It is not enough to simply chase low-cost labor rates, manufacturers must consider both total cost and proximity to demand. Beyond these considerations, globalization (i.e. diversification) of supply will also limit the effect of local or regional disruptions.

· Better supply/demand contingency models. In base materials, industry planners seem unable to answer the question as to whether lost capacity (supply) will increase prices or lost demand will lower them. Also, the analysis necessitated by events in Japan must be combined with the implications of the unrest in the Middle East to allow for more comprehensive contingency planning and more effective supply response.

“We give a lot of credit, deservedly so, to the investments industry has made in supply chain planning and execution in terms of being able to deal with major market shifts,” he said. “This was certainly true during the recent recession when these systems created a greater ability to respond. The events in Japan, certainly the severity, are nearly impossible to be fully prepared for and, while supply chain systems are delivering, there needs to be additional improvements in order to better mitigate risks and speed response.”

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