Manufacturing supply chain focuses on lean operations
The focus of the manufacturing supply chain is moving towards flexibility and responsiveness. For years now, the thrust of the practice has been to "lean" operations. Products arriving just in time, low inventories, assembly in the lowest cost facility, and offshore manufacturing are the results. The strategy is an improvement of the practices in the 1970s.
The arrival of Internet sales is changing the dynamics of the equation. The Internet promises instant gratification. Orders can be placed quickly and the selection of products and suppliers available to make a choice from is huge.
More importantly, all of them are available with little shopping effort. There's no need to physically go from store to store, and there's so much choice that a stock outage or a long delivery cycle will almost certainly result in a lost customer.
The emphasis of the logistics chain is shifting towards availability and service again. Still, we can't go back to the bad old days with fire sales to get rid of slow movers. We need to reduce the logistics chain and increase flexibility, while keeping inventory down and quality up. We need to get nimble.
Let's take a hypothetical product—chicken. Suppose it is cheaper to raise chickens in China. The market for chicken is worldwide, and the logistics technologies are all in place for shipping products—refrigerated containers, for instance. In the old model, converting the meat to nuggets or patties would also be cheaper in China, and the natural inclination is to move production there too.
That's great until the consumer realises there are perhaps 100 options for flavours, sauces, and package sizes available for those products, and that there are maybe 200 related products, such as frozen dinners. Now, if the demand for these is relatively stable, off shoring still makes sense, though forecasting needs real care. However, if there is sensitivity in demand due to weather, or NFL games, or the latest recipe on The Chew, demand/supply imbalances will occur, and business will go elsewhere.
The solution is to balance up the production using on-shore facilities for the differentiating processing required to convert the product to what is hot. In the case of the chicken, processed chicken meat can be shipped to onshore configuration facilities and made into the "nugget of the week." Now the logistics chain has gone from maybe a 12-week response down to just a few days.
This thought process works for computers and other electronic equipment. For years, we've built barebones servers in China, and used US facilities for final configuration. But we don't do that for our iPhones. Apple, real experts at inventory management, missed the boat on the 5C/5S mix and was forced to fire sale 5C units. Their pipeline was well-balanced for a successful launch, but way too long for a miscalculation. Apple also suffered from a quality problem that led to rebuilding a lot of gear already in the pipeline. This meant rework, scrap, excess inventory, and ultimately lost sales.
Apple operates with huge volumes, so the forecast perturbations generally are nowhere near as severe as this, though they have run out of product at launch time. Mere mortal companies face a much more interesting demand management problem.
Let's look at the future of consumer electronics in general. The recent Consumer Electronics Show (CES) show had hundreds of new gadgets on sale, and we can expect proliferation to increase as the Internet of Things takes hold of our world. Clearly, most of these are going to sell in the thousands and tens of thousands, not the millions of units an Apple or a Samsung ships.
A long, rigid pipeline doesn't make any sense for these companies. Having to forecast volumes for six months and place orders before unit one has shipped, they risk disaster from a lack of sales or a start-up quality issue. They need a nimble supply chain.
This means they need to find suppliers that are both low-cost and able to respond to design changes quickly. Some new technologies help a lot. 3D-printing is reaching a quality and cost-level to be an affordable alternative to hard-tooled solutions during start-up. Even metal-bending is becoming on-demand, with robot plasma cutters and bending gear simplifying operations a lot.
Will the push to nimble operations spread to the Apples of the world? The cost of robotics has dropped dramatically in the last few years, to the point that Foxconn is considering replacing the million or so workers that make iPhones with robots. Why not site some, or even all of those in the U.S.? Apple's pipeline would be both nimble and Lean! It would remove the cost of shipping unit packaging from overseas for instance, and trim inventory by a huge factor, likely giving Apple a turns ratio in the 20-plus range.
The nimble idea fits a lot of businesses that face a broad set of deliverables derived from the same product. Products ranging from Guinness Stout and Scotch whisky to notebook computers are good examples of why nimble is an idea whose time has come.
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