Technology supply chains must adapt to permanent volatility

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Technology companies must make fundamental changes to their supply chains to deal with “permanent volatility”, according to a new study commissioned by DHL Supply Chain.

The study found that the biggest threats to market stability included, erratic consumer demand, supplier risk, fluctuating foreign exchange rates and increased transport costs.

Alessandro Mariani, director of European logistics for DeLonghi  said: “The real issue is that no one knows what is going to happen even once we are out of the crisis and which kind of world is going to wait for us there.”

The report, “Embrace Volatility – A route to steer technology supply chains out of the recession” was produced  by think tank FreshMinds. It is based on research carried out with more than 30 technology and supply chain academics and experts as well as supply chain directors and managers from technology companies including Kodak, Lenovo and Sun Microsystems.

It warned that technology companies only making cost saving changes such as supplier squeezing and near shoring, were in a delicate position.  While it was critical to focus on the immediate effects of the recession, the report said, technology companies needed to look longer term to mitigate risk, even out demand and prepare for any circumstances.

The report said diversification and agile supply chains were critical to the future strategy of all technology companies. This is based on six key areas of adoption:

* Dynamic pricing:  technology companies that can integrate sales, forecasting and stock management systems will be able to manipulate demand for products depending on supply to alleviate the risk of supply shocks and falls in demand.

* Risk management:  supplier solvency, cost fluctuation, demand volatility, security threats, labour strikes and systems failures all pose significant risks but are often overlooked. Businesses are not at the mercy of these forces – technology companies will need to take steps to identify potential risks to manage, mitigate and even insure against them.

* Multi-channel sales strategies:  a varied route to market can even out fluctuation to create a more consistent flow of demand. While companies are reluctant to invest in new routes to market, a multi-channel approach will enable the movement of stock where demand is stronger.

* Developing markets:  the recession has impacted each country in different ways, and the speed of recovery will also be varied. By adopting a regional distribution model, companies can spread risk, reduce costs, and mitigate the volatility of demand in individual markets.

* Horizontal collaboration:  the downturn has compelled companies to reappraise the potential for competitor collaboration. The technology sector is particularly suited to this due to an overlap in the generic nature of products at various stages in the supply chain (e.g. transport and inventory costs). Such ‘co-petition’ will allow companies to share the risks and capital investment required when entering new channels or markets.

* Sales, marketing and supply chain alignment: as businesses look to diversify, commercial and logistical operations must be aligned. Entry into a new channel or geography ripe for sales will need to be underpinned by viable supply chain strategies to succeed.

Humberto Florez, global technology president of DHL Supply Chain said: “The insights from across the sector have revealed steps that technology businesses can take to shore up business security. Some of the ideas may seem rudimentary but they aren’t being practiced while others will introduce entirely new thinking to the sector.”

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