Can Supply-Chain Tools Ward Off Future Gluts?

Electronic News, August 13, 2001 by Rob Spiegel

Why didn't supply-chain management tools alleviate the inventory buildup last fall and winter? Some industry watchers point to a lack of deployment, while others believe the problem was an inherently human disconnect between OEMs, contract manufacturers (CMs) and their supplier base.

"The promise of this has been around for 10 or 15 years, and it's the same story every downcycle: Why didn't the tools prevent this?" said Bill Barron, chief marketing and sales officer at PartMiner Inc., an online parts marketplace based in New York.

Much has been made about the power of emerging supply-chain tools, but many in the industry believe some fundamental communication problems live at the heart of the relationship between manufacturers and their suppliers.

"The tools are only as good as the people using them," Barron explained. "If you're an OEM and you give me wrong forecasts, all the great software in the world isn't going to help the problem."

Lack of deployment was clearly a problem this past fall and winter. Demand fell off while manufacturers were caught up in the go-go boom of past two years. Manufacturers managed to shut down production more quickly than in the past, but it wasn't fast enough to dodge the inventory glut.

"I was watching the OEMs and their CMs, and the channel partners were quickly able to turn off the inventory spigot when they saw the demand go down," said David Cahn, research director of the High Tech Group at the Boston-based AMR Research. "We were quicker to react to the slowdown compared with three years ago." Cahn also noted the communication glitch between manufacturers and their suppliers. "The OEMs were still working off a 90-day watch. It was like a disconnect."

That disconnect produced a gap that allowed the inventory buildup. "On the channel level, they're working off a true demand, but on the OEM side, they're working off forecasts that have buffers to ensure a certain level of service. As you continue to buffer the forecast, the fudge factor builds."

Cahn noted that in the past the automotive industry has watched the electronics industry for clues on how to manage the supply chain. He noted that recently the electronics industry has been looking at the automakers for hints on how to handle a downturn in demand, an experience very familiar to the auto industry.

"The electronics industry is looking at the auto industry because of its experience with fluctuation in demand," Cahn said.

According to Cahn, a number of tools are coming onto the market that will help settle discrepancies between supply and demand.