What lessons did the electronics industry learn from events in 2001?
During a recent EBN interview, I replied, "inventory management is an oxymoron." Despite all the attention and budget dedicated to managing inventory worldwide, our industry produced more than $50 billion in excess inventory last year.
We also saw countless cases-and unnecessarily spent dollars-where the wrong products were in the wrong places at the wrong times. In retrospect, the electronics community just didn't have the proper systems, people, and processes in place to effectively manage inventory in the extended global electronics industry.
Hindsight may be 20/20, but we can translate last year's lessons into strategies for successful inventory management in 2002.
Lesson 1: A "best guess" is not a forecast. With forecasts driving your supply chain decisions, you need the most accurate demand signals possible. Yet too often these signals are based on unrealistic guesses from customers or the sales team. It's not hard to get caught up in the feeding frenzy and customer service demands, and simply accept your partners' best guesses.
Effective forecasting requires Web-native tools that make it easy to collect updated forecasts from customers and partners (wherever they are located and from whatever system they use) using configurable rules with automated triggers and alerts to ensure the data's integrity. These must be coupled with advanced analytics to slice-and-dice and statistically analyze projections. This enables you to make a more in-depth assessment and complete analysis, allowing increased forecast accuracy, improved trend predictions, and efficient use of capacity and resources.
Lesson 2: It's about process, not price. Forecasting, sourcing, and inventory management across an extended supply chain require an on-going dialog with customers and partners. This is where Web-native applications, coupled with seamless back-end connectivity, can really have an impact by providing global supply chain partners ready access to up-to-date information.
Last year we saw many Web exchanges and auctions in the electronics industry collapse. These early efforts focused on price and liquidity, but they ignored the process and dialog needed to achieve real efficiencies, work reductions, and time savings.
Lesson 3: Coercion won't work. If you just move costs and inefficiencies to your suppliers, they come back as higher component prices. Instead, you have to optimize the entire supply chain, eliminating inefficiencies and reducing costs to the mutual benefit of all partners. This requires sharing information-with instant access to current demand, supply, and consumption data.
To make "collaboration" more than just a word, we'll have to define it similar to the way we had to define "quality," with standard, measurable definitions and expectations. We also need a common platform with trusted, consistent, valid, and reliable information, where all supply chain partners can easily connect for ready access to information and collaborative management tools.
And we have to remember: systems can't collaborate unless people do. So this collaboration platform must respect and support the business agreements, and terms and conditions the people and companies using them have established.
Lesson 4: The extended supply chain is here to stay. It's fashionable to talk about "dot bombs" and a failed "new economy," but no one is predicting a return to the post-World War II vertical integration model. We've opened Pandora's box; we're dealing with a global economy. You can buy anywhere, sell anywhere, and outsource anywhere. And you will because you can. The Internet makes a global market easy. You have to leverage core competencies wherever they are. You'll continue to buy and source anywhere in the world. Outsourcing is here to stay. And so is your extended supply chain.
The problem is that the traditional "four walls" supply chain solutions used by most of our industry haven't been designed to cope with globalization. They can't provide instant, secure, authorized access anytime, anywhere. And they require customized, often time-consuming and costly links to each new trading partner's platforms and systems.
To make "inventory management" a meaningful reality in the electronics industry, we need a new generation of Web-native extended supply chain solutions. These new systems make collaboration transparent by providing a common platform, common methods, and seamless, intelligent connectivity with individual back-end systems.
We don't want to be in the same position next year, still trying to learn the same lessons. As George Santayana said, "Those who do not remember the past are condemned to repeat it." Instead, let's use what we've learned to make inventory management a tangible reality in 2002.
Rob Rodin is chairman and chief executive of eConnections, a Pasadena, Calif., provider of extended supply chain intelligence solutions., and the author of "Free, Perfect, and Now," which describes his supply chain-related experiences while chief executive of Marshall Industries.