Daily Archives: February 14, 2008

What Will Be The Top 10 Supply Chain Stories of 2008? Part IV

In part I, we reviewed Supply Chain Digest’s 2007 Supply Chain Year in Review article, where they picked their top ten news stories for 2007. In Part II we reviewed Supply Chain Digest’s Key Trends Impacting Supply Chain Management and Logistics for 2008, as identified by the nine executives and academics they asked to postulate what 2008 has in hold. Then, yesterday, in Part III we speculated what the top 10 supply chain related stories in 2008 could be, if the right chain of events occurred.

In today’s post, we’re going to dive into the first five stories that we postulated and carry the exercise to its logical conclusion. The whole point of attempting to predict what might happen is to figure out what bad things could happen, how they might come about, and what we can do to prevent them.

Company X Toy Recall Fiasco

Scared off by the recent Mattel Fiasco, Company X decides to shift production back to their former low-cost country location of choice, Mexico. However, their new supplier uses a low quality plastic, and the toys break easily, making them choking hazards to toddlers.”

In 2007, China was painted as the home of low quality, as it was the country associated with the most, and most extensive, quality issues reported last year. However, this is to be expected giving that, last year, the US imported more goods from China than any other country in the world. Imports from China topped 300B last year. Only Canada reached that order of magnitude. (Mexico topped 200B, Japan 140B, and every other country was (well) under 100B.) Thus, you would expect more problems from China imports than imports from any other country.

It’s important to note that the stories that made media headlines were associated with product lines that were valued in the millions, not billions. Why? This helps to demonstrate that quality problems are not associated with a country, but with a specific manufacturer, and, more often than not, a specific manufacturing process. This means that moving your production from one country to another will not solve your problems, it will only replace old problems with new ones.

The ounce of prevention here is to review all of your processes and put inspections and safeguards in place to make sure each step is performed at a high level of quality and that each component and material used in the production of a product is adequately monitored and tested.

Well-Water is the New Spring-Water

A record heat wave hits and water levels in the lakes and reservoirs drop to dangerously low levels. A new project to lay pipe-lines to wells in neighboring states is announced.”

Whether you believe we are responsible for it or not, Global Warming is here. Temperatures have been increasing along with the frequency of significant natural disasters. You need to plan for it, figure out what it could mean to you, and have disaster mitigation plans and procedures in place.

In the situation described, a heat wave threatens water supply that you need to cool your plant and / or make your product. This is not unlikely, as it coincides with a major prediction by the World Future Society that water will become the new oil in the near future.

The ounce of prevention here is to identify alternate sources of water, and, if possible, drill new wells.

Gold Tops 1,000 an Ounce

Global recession fears push more and more investors to invest in gold reserves.”

This is a financial prediction, but it has a significant impact for any company that requires gold in the production of its products, and semi-conductor manufacturers in particular.

The ounce of prevention here, for semiconductor manufacturers in particular, is to find alternative mixtures of conductive metal cores (which typically use a mix of gold, copper, and aluminum) and to institute a global recycling program in a big way. After all, these materials have been used in semi-conductor manufacturing for years and, thanks to a historical lack of forward-thinking, will end up in landfills when they could be cost-effectively recycled to keep more dollars in your pocket.

Major Semiconductor Manufacturer X Files for Bankruptcy

The rapidly rising pricing of gold coupled with stagnant demand for new processors has forced many chip manufacturers to the brink, and even X couldn’t handle the strain.”

As discussed above, when the price of gold tops $1,000 an ounce and, effectively, goes through the roof, this is going to hurt many semi-conductor manufacturers that are already feeling the strain from the economic slowdown and the resulting lack of explosive growth they were expecting as IT appeared to be entering another boom. Some might even go bankrupt.

However, similar challenges will be faced by other manufacturers also dependent on raw materials whose prices are continuing to sky-rocket year after year.

The ounces of prevention are to devise a multi-pronged strategy that identifies alternative materials and production methods that require less of the costly material, that recycle as many last generation products as it can to extract reusable raw materials, and that hedges against continued price increases with good contracts and good financial planning.

Company X becomes Number One Growth Retailer in the US

Wal-Mart’s lost mojo is picked up by X who focusses on higher quality products, better customer service, and green products, versus just green supply chain practices.”

Constant growth in a market is hard to sustain, and exponential growth in a market is unsustainable. At some point, you will reach equilibrium. Given the sheer number of stores Wal-Mart has, if it’s not there, it’s pretty close. And once you’re at the top, there’s only one way to go: down. The only way Wal-Mart can stay at the top is to be flawless in every way – execution, customer service, and image-wise. Although it’s possible, it becomes more and more unlikely as time goes on. This means that it’s possible that someone else can take part of their market-share. If another company were to take enough, fast enough, they could become the number one retailer from a growth perspective in the US.

However, it’s not just Wal-Mart that’s in trouble – it’s any retailer who’s a leader in their industry. Consumers are fickle, and you never know what will repel them or what your competitors will do next to lure them away.

The ounce of prevention here is to never assume that your products are good enough, your stock-out rate is low enough, and, most importantly, that your customer service is outstanding enough.

Come back tomorrow as we explore the next five hypothetical situations that could, especially if precautions are not taken, become reality this year.