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From Handbags to Airplanes: Supply Chain Visibility Always Matters

by Dave Hannon

June 14, 2013

By Dave Hannon
@Daveatwispubs

I heard a story at one point in my career that I could never verify, so I won't use the company name. But it was perhaps the best lesson in supply chain visibility I've ever heard so I'll share it with you. It went something like this.

The VP of supply chain for a high-end handbag maker is walking through the streets of Tokyo and sees a vendor on the street selling knock-offs of his product. He'd seen this kind of thing before and found it sort of amusing and just for kicks, he picks up one of the bags and examines it. He looks at the materials, he looks at the stitching, he looks at the logo--it's all flawless. Exactly like the real thing. In fact, he buys one from the vendor and brings it back to his VP of manufacturing who examines it and he can't tell the difference between the knockoff and the real thing. "So I thought either these counterfeiters are getting REALLY good or there's something else going on here," he told me.

Can you guess what's going on here?

The handbag maker was using a contract manufacturer in Asia to produce the handbags based on their designs and materials. The only problem was the handbag maker didn't monitor that factory very closely. So the factory would work hard to fulfill the volume required by the handbag maker and then, with whatever time was left over, would continue making the handbags for sale on the black market. So other than flowing through materials a bit more quickly than forecasted, the handbag maker might never have known because all of their customer commitments were being met. (In fact the VP of supply chain told me this factory was one of their favorites because of the speed with which they churned out the handbags--no wonder why!)

It was a very harsh lesson in supply chain visibility and while it's probably 10 years old today, multi-tier supply chain visibility remains elusive for many companies and industries in an era of increasingly outsourced manufacturing. (NOTE: Frequent business travelers may want to skip the next part of this blog post).

Case in point: The aerospace and defense industry. According to a recent survey of aerospace and defense firms by KPMG, "A&D organizations have far less visibility into their supply chains than peers in other sectors. Only 27 percent of A&D organizations said they had visibility past their Tier 1 suppliers (versus 41 percent of non-A&D respondents) while nine percent said they had no supplier visibility at all."

So 9% of the firms making airplanes, spacecraft and missiles have no supplier visibility at all? Without naming names, I think there's one company you've probably got in mind that has seen some major production and PR problems as a result of this lack of supplier visibility. But I won't beat that dead..uhh...slightly wounded aircraft maker here.

And the problem flows both ways in the A&D supply chain. The KPMG survey found that nearly half of A&D suppliers report encountering significant challenges in aligning operations to real-time fluctuations in customer demand, indicating the OEMs aren't providing visibility either.

So if we're going by that one survey, the A&D industry might not be the one to benchmark for supply chain visibility best practices. But never fear--if it's SCM benchmarking you want, it's benchmarking you'll get.

The electronics industry historically has been a leader in the use of supply chain technology to increase visibility. If you're looking to hear some best practices straight from that horse's mouth, you might want to check out this webcast next Wednesday featuring Applied Micro's use of SAP supply chain solutions: bit.ly/153rAf9

SAPinsider Senior Writer Ken Murphy recently interviewed Jabil Circuit's Rocio Timko and Charles Nichols at the SAPinsider SCM 2013 conference to hear more about that company's use of SAP Supply Network Collaboration. Check out the video here

And if it's consumer products you're looking to benchmark against, this case study -- Conair Improves Supply Chain Planning Accuracy and Customer Service -- would be a good resource for you.

The overall lesson here is whether you're making airplanes, hair dryers, microchips or handbags, you have to know what your suppliers are doing in today's ever more global market.

Now, if you'll excuse me I have to head downtown and find a knockoff Rolex in time for Father's Day. (Just kidding dad!)

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