Case

Electronic Products, Inc.

Imagine that Electronic Products, Inc., well-known manufacturer of consumer electronics, decides to expand its manufacturing in China. The CEO assigns the task to the vice president of manufacturing, and within two years, the company has a plant up and running in Guangdong. Unfortunately, however, Electronic Products has no overall end-to-end supply chain capability to account for the fact that its lead times have increased by four weeks. This, in turn, has an impact on how the company sells its product, takes orders, plan distribution, sizes warehousing, and manages inbound and outbound logistics throughout the global markets being served by the Chinese plant.

In short, although the company has lowered its product costs, it has increased its supply chain risk and possibly raised its total cost of ownership – taking into account the impact on lost sales. According to Accenture, Inc., risk in the context of global operations may be placed into three buckets: uncontrollable (such as geopolitical instability or natural disasters), somewhat controllable (e.g., volatility of fuel prices), and controllable ( for instance, forecasting accuracy or the performance of the supply chain partners). Based on the study of 300 companies, however, Accenture found the more controllable factors constitute the greatest source of disruption. Up to 35 percent of respondents reported being impacted by natural disasters and 20 precent by the geopolitical turmoil. But 38 percent indicated they felt the effects of their supply chain partners’ poor performance, and 33 percent had been hurt by logistics complexity, for instance. The consequences of failing to manage those risks are costly indeed, as negative impacts may be experienced in metrics such as sales, return on sales, operating income, return on assets, and inventories.

Although few companies have mastered the management of risk in global operations, many are trying. For example, more than 60 percent of the executives who participated in the global operations study conducted by Accenture indicated that their organizations were manufacturing locally and globally and that they are using contingent suppliers and / or logistics providers. Half said they are intentionally established a geographically distributed supply base, and more than half cited increases in inventories and safety stock. Furthermore, 49 percent claimed to have a formal supply chain risk management program in place already.

Case Question

1- Assume you are the CEO of Electronic Products, Inc., and that you are aware of you r company’s lack of overall end-to-end supply chain capability. What are some of he high-level, adverse impacts on your business that may occur?

2- What steps would you recommend be taken to help avoid the types of adverse impacts identified above?

3- As CEO, what would be your expectations of the company’s vice president of supply chain with respect to the potential problems at hand? How would you compare and contrast expectations of the vice president of supply chain with those of the vice president of manufacturing?