Posts Tagged ‘China’

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I recently read a blog post by Bob Ferrari at his Supply Matters blog.  The post, entitled A Key Takeaway in Supply Chain Risk Management , described some of the quality issues plaguing China (tainted milk scandal, contaminated pet food, contaminated heparin) and Mexico (Salmonella laced tomatoes).  I posted a comment at his site, but have also included it here.

** My comment **

Good comments.  To me, the key takeaway was that Supply Chain Risk Management is something that no company can afford to ignore.  Of course, I couldn’t agree more.  However, while Bob’s focus was on quality, I want to make sure that we also focus on the flow of materials within the supply chain.  Not having any product to ship due to a supply chain problem will also have a negative impact on your company.  Let’s take a look at some of the events over the last little while;

• This year, the Olympics were held in Beijing.  The Chinese government put extremely strict limits on factories and on transportation in and around Beijing running up to the 2008 Olympics in an attempt to reduce the air pollution in that region.  If that region was part of your supply chain, you would have been impacted
• Earlier this year, there was a significant Earthquake in China.   While less important than the loss of life and the pain and suffering brought about by that event, several factories were destroyed.  Along with those factories sections of several supply chains were also destroyed
• In March of this year, the LG Chem factory in Ochang, South Korea burned, causing laptop battery shortages for Dell and HP
• In February of this year, year, the Lite-On LCD factory in Dongguan, China burned, impacting Dell, HP and Lenovo amongst others
• There are many other examples, some of which may have impacted you.

In addition to these catastrophic events, strikes, business closures, extreme weather and global shortages (and excesses) can all impact your supply chain.

So how do you identify and manage the risks in your supply chain?�
It starts with visibility.  You need to be able to see what suppliers contribute to your end product (and how much).  You need to be able to identify which suppliers supply unique components – components you can’t get from any other supplier.

Then you need to have analytic tools.   You need to be able to model your entire supply chain.  You need to be able to report results in ways that are relevant to your business.

Next you need to be able to simulate supply chain events.  What would be the impact if this supplier cut production by 50%?  What if I couldn’t get any of these components?  What impact would this have on my corporate metrics.  What would be the impact of a 10% downside? What would that do to my inventory position What about a 15% upside?  Could my supply chain cope?

Finally you need to be able to simulate potential solutions.  How long would it take to bring on another supplier? What parts could be substituted if I couldn’t get this part? What alternate routes could be leveraged to transport these goods?

I’ll leave you with this thought.  The difference between those companies that are significantly impacted by supply chain events and those that can ride them out is the extent to which they have anticipated and planned for the possibility of these things happening.  Which will you be?

Bob Ferrari on his Supply Chain Matters blog discusses recent stories projecting the timing of when China will eclipse the US in total manufacturing output (see his post here).  Bob goes on to discuss the implications of this shift.  I commented on his blog and have added my comment below as well.

** My comment **

Bob - I agree with your views.  First, I think it’s inevitable that China would surpass the US in total manufacturing given their size and recent track record of growth.  Their domestic market alone is enormous and I think we’ve all seen how global everything has become and we know the potential for them to export.  I know my kids already think everything in the world is manufactured in China!  As these articles point out, that is hardly the case.

As you suggest, I don’t think that should be a core concern of the US.  What we are seeing is not a unique situation.  For generations products have moved to different regions of the world to be produced, following markets, skilled labor, lower costs, etc.  Certainly we’re seeing this on a broader scale given China’s size, but the core issue is not unique.

What is critical for the US is, as you suggest, being the leader in innovation.  What are the next generation products that only the US can produce because of its unique assets (capital markets, skilled labor, R&D, etc.)?  That is the key for the US.  The standard of living for the US will continue to climb if we continue to be the innovators for new, high-end products in demand by the rest of the world.  In this area, the US is still doing exceptionally well and still has ample opportunity in front of it to lead.

All boats rising is not the challenge for the US.  The challenge is to develop innovative products in demand by the world, to train its people to manufacture them and to establish market leadership in these evolving markets.