Gauging Supply Chain Success
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Supply chain management isn't easy, and accurate demand forecasting is even tougher. We asked Dr. Hau Lee, the Kleiner, Perkins, Mayfield, Sequoia Capital Professor in the School of Engineering at Stanford University and one of the foremost names in supply chain analysis, for his thoughts on the data and transparency issues that contribute to successful forecasting.
CIO INSIGHT: Why has forecasting demand proven so difficult, especially considering all the technology we've thrown at the problem?
LEE: We rely on immediate sales data to make a forecast, but of course we know that the immediate data may not resemble the exact consumption. For example, if you are a semiconductor company, you rely on the immediate order data from the contract manufacturer, who in turn is providing products for the original equipment manufacturer, who is providing products for the retail channel. There are so many layers out there, and everybody is distorting data, distorting the patterns, so that by the time the semiconductor company receives an order it may be very different from what the market needs.
How can we overcome these problems?
First of all, we need more visibility up and down the supply chain. We need this visibility so we won't be fooled and overreact. As to visibility, the technology is already there. Companies like Manugistics Group Inc. and i2 Technologies Inc. have those networking capabilities, and Cisco Systems Inc., with its eHub, is proving the concept. So it's no longer a technology issue, it's a people and a culture issue. Companies are still reluctant to share information.
The second thing is, we need intelligent coordination. Getting signals is good, but can you make use of it? If I tell you something is going on downstream, how can you use that information? Trying to coordinate a multilevel supply chain is very difficult. Some startup companies are trying to do it, but I think we still have much further to go there.
What parts are still missing for intelligent coordination?
It would be in the area of taking appropriate action. If you tell me today that a supplier several layers down in my supply chain has a problem, it might take four weeks before that problem bubbles up and affects my production. So what do I do today? I can ask contract manufacturers to start shifting production, I can find a new supplier, I can ask my customers to shift their demand plans. There are many ways to react. That's not something that technology today can provide. It still requires humans to step in and use their experience to remedy the situation.
What role does the CIO play in overcoming these challenges?
Today's CIO has to be on top of the latest technologythat's a given. But today's CIO also has a new mission. Say you purchase a new solution, from i2 or Manugistics. Unless your suppliers and partners are willing to play and connect into the system, the value you can gain is limited. So the CIO has to work closely with the other [partner] executives, and take on the role of articulating the value and the benefits of participating in supply chain integration.
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