Managing supply chains across the ocean
Quality issues, recalls demonstrate the risks of offshore production.
In Summary:
| • | Offshore production cuts costs, but also increases quality risks. |
| • | Organizations need to identify adverse performance trends before they become a crisis. |
| • | Software systems can increase visibility and communication throughout the supply chain. |
The shift over the past five years in the manufacture of products to countries where production costs are less has resulted in one unintended by-product: more product recalls and tainted goods popping up on store shelves. In 2007, melamine-tainted pet food, chemical-laced toothpaste, drug-tainted seafood, and toys containing lead paint have introduced another concern for U.S. manufacturers and consumers, who now worry about the quality and safety of product imports from China and other countries.
Despite the risk, it's almost impossible to resist the cost savings offshore manufacturing offers, says Mike Romeri, director of the Business Technology Innovation Practice at PRTM, a Massachusetts-based management consulting firm. U.S. companies that investigate their global sourcing alternatives and realize a significant reduction in product costs—10 percent to 20 percent from point of delivery to customer, he says—can gain a huge advantage.
"Most organizations do take the time to realize it will make their supply chain more complex and more costly to operate," Romeri states. "Visibility of the supply chain becomes tougher 12,000 miles away because you can't walk down the halls as easily to figure out what's going on."
Risks to globalization
One area that manufacturers can focus on is performance management. This entails using visibility to enhance collaboration and improve productivity. By monitoring different aspects of the process, Romeri says organizations can identify adverse performance trends before they become a crisis. With specific policies in place to ensure a smooth supply chain, a policy violation, he says, is the earliest indicator of a problem. Companies need to build a transaction into the process that ensures all required quality compliance activities are carried out when they should be. A performance management platform can monitor that compliance and contact the appropriate individuals when potential problems arise.
Another problem with offshore manufacturing often lies in experience. In Chinese factories, for example, few workers are over 30 years old, Romeri says, whereas a team with several workers in the United States might average 25 to 30 years' experience. As a result, people managing the supply chain overseas typically have significantly less experience than those in the U.S. With experience comes much informal knowledge that can enhance the process and help prevent problems. To ensure policy compliance across the miles, it is critical to require more formality in the process; third-party inspections, says Romeri, are one way to do so.
Gaining visibility
Manufacturers are facing two problems, says Tyler Bryson, Microsoft's general manager for U.S. Manufacturing Industries. They need greater visibility into their supply chain at a time when globalization has enabled them to be more decentralized and distributed than ever before. And while supply chains are connected by systems and applications, it's critical that people are connected to those processes as well.
"There is a need for people to analyze the data and to look at the quality assurance problem," Bryson says. "Today those people are all over the world, but you've got to keep that supply chain moving and get decisions made."
Software systems can play a key role in increasing visibility and communication through the supply chain. In many cases, it comes down to connecting not only the data around the business processes and transactions but also the people who are responsible for those transactions and decisions. Organizations can use technology to connect three key business processes: connecting with customers, connecting back into core product development, and then connecting out to manufacturing operations and the supply chain system.
"It's not just a manufacturing plant issue but a complete business process issue today," Bryson says. "Organizations must have a continuous loop of feedback all the way out to the traceability of the product."
If there is a positive note to the recent highly publicized product recalls, says Romeri, it is that manufacturers will be likely to apply more resources and use technology to more carefully monitor compliance with existing rules about managing the safety of their products. "It's forcing people to appreciate the subtleties in managing an extended supply chain that financial people typically want to overlook—some of the hidden costs of going global," he says.
 | Vicki Powers is a regular contributor to Momentum, the midsize business center newsletter.
|
