Expert Insight: Guest Contribution
By Kelly Thomas
Date: July 22, 2009

Top 3 Supply Chain Challenges This Summer


Cost Containment, Risk Management, Supply Chain Visibility and Better Decision Making

The global economic slump continues to dominate the operating plans of companies across almost all industries. Since the slump began, it has uncovered many rocks across global supply chains. Suppliers that were stable and had quality credit ratings were going bankrupt several months later. As demand at the front end of the chain declined, supply chains reacted extremely fast, creating a bull-whip effect. This effect – previously thought to have been attenuated through technology – severely punished manufacturers throughout the supply chain. Each tier dealt with a higher amplitude of demand change as the downturn rippled through. In the automotive industry, for example, a 40 percent decline in consumer demand translated into a 60 to 70 percent decline for tier 2 suppliers. In the consumer electronics industry, tier 1 and tier 2 suppliers got into a game of guessing how low demand would go and retrenched against each other to ensure their survival.

Now that retrenching has occurred, supply chain managers are asking “what’s next?” The following areas are top-of-mind for supply chain leaders this summer:

  • Cost containment;
  • Risk management; and
  • Supply chain visibility and better decision making.

Cost Containment


Although the slump seems to be abating, it would be folly to not have cost containment high on the list of areas of focus. Transportation costs are a natural place to start and relatively easy to quantify and find value. More strategically, the economic downturn presents an opportunity to evaluate the entire supply chain using an analysis of extremes. This means re-evaluating the structure of the supply chain and its ability to absorb shocks. Supply chain leaders are using the demand shock to evaluate their ability to run leaner and more flexibly.


Risk Management

It is evident, more than ever, that a focus on least-landed-cost sourcing needs to transition to a focus on best-landed-cost sourcing. This means that all sources of supply have risk profiles associated with them and that risk must be understood and managed. Modeling tools and systematized best-landed-cost sourcing are being used by leaders to manage risk throughout the global supply chain. Best-landed-cost sourcing means evaluating all aspects of sources of supply, including unit prices, transportation, duties, taxes, fuel price fluctuations, currency fluctuations, supplier risk profile, inventory, warehousing, handling, repair and breakage, and service penalties. All of these variables – taken and evaluated together – provide a risk/reward profile.

Supply Chain Visibility and Better Decision Making

It is apparent that despite the introduction of supply chain technologies that have led to dramatic performance gains in the past 15 years, the bull-whip effect is alive and well. It has just morphed into a different organism. Slow reaction times have been replaced by extremely fast reaction times, but faster decisions don’t always mean better decisions. Many leading companies now have visibility to demand signals. The challenge is that not many companies are making intelligent decisions off of those demand signals. Supply chain leaders are now integrating demand signal visibility into a systematic sales and operations management process that intelligently evaluates alternatives, makes decisions, and reacts. These companies are using Deming-based, Plan-Do-Check-Act thinking to create a control loop for their demand/supply management processes.

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Kelly Thomas is Senior Vice President of Product Strategy
& Planning at i2 Technologies.
He can be reached at:


Thomas Says:

It is evident, more than ever, that a focus on least-landed-cost sourcing needs to transition to a focus on best-landed-cost sourcing.

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