Supply chain uncertainty requires better IT tools

How are retail industry supply chain managers coping with the aftershocks of the Sept. 11 terrorist attacks on the U.S.?

John Simon, executive vice president of QRS Corp., a retail supply chain vendor in Richmond, Calif., says the supply chain disruptions are prompting more attention in the following three areas:

  • Companies want more flexibility in their supply chains because there's more uncertainty about interruptions -- for example, if your largest source of manufactured products is in Pakistan.

  • Companies are seeking more visibility into what's happening at suppliers and with materials that are en route.

  • Companies want to do more work remotely. "People are more and more reluctant to just jump on an airplane," Simon says. "If they're having problems with their supplier in Pakistan, they may have to solve these problems with systems and information remotely, vs. in-person."

Furthermore, you need constant communication among all of the people in the supply chain, so they're all working on the same schedule. "If the result of terrorism is that you add two days to shipping, you don't want the shipper to add two days of safety stock and the wholesaler to add two days and the retailer to add two days—then you've added six days," Simon cautions.

So is the concept of just-in-time (JIT) inventory in trouble?

"That depends on what you mean by just in time," Simon says. In the retail industry, the supply chain is working nine to 18 months in advance, whereas in the automotive industry, it may be just hours before the parts hit the assembly line. So JIT is a relative term, depending on the industry segment.

"In retail, where inventory turns only two times a year, a day or two [of delays] at the border" isn't a big problem, he says. But if you're shipping milk or getting vegetables from Nogales, Mexico, then border delays are a big problem. "They can't sit in a truck for 48 hours in Nogales, or they'll rot," explains Simon.

Companies may need to tweak their supply chain systems. For example, if a transportation problem affects a critical part—like bumpers for cars—the company may need to find a different supplier or transportation mode, just as it would if there was a labor strike. But the response depends on the industry and the product. "Will you be out of milk for five days? Or out of wool sweaters for five days? What's the profit margin of the good?" Simon says. "The opportunity cost of being out of a good that has a 100% markup—and this is the season to be selling it—is high."

When it comes to supply chain disruptions, "you can't panic, and you can't wing it," he says. "What it requires is increased visibility into what exactly is happening in the supply chain. Where are the goods or component parts? Where are the bottlenecks?"

Overall, the supply chain is complex enough that it requires IT help. "Trying to do this without automation is pretty difficult," Simon concludes. "You need to have tools that people can use to model the impact. This uncertainty requires people to invest in tools to help them get through those issues."

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