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Whoever said getting parts from Point A to Point B was an easy task was probably born in the electronics industry's pre-Internet, pre-just-in-time days.
While software, mobile applications, and high-speed global connectivity have certainly made it easier to process orders, track parts, manage exceptions and ensure on-time delivery, all of these things have also added new complexity to the supply chain — not the least of which involves managing multiple levels of company-specific, regional, national, and international security checks.
Safeguarding the supply chain has become a top risk-assessment consideration among high-tech executives, and its importance shouldn't be underestimated. As noted earlier this year, more than 90 percent of those surveyed by the World Economic Forum and Accenture indicated that supply chain and transport risk management has become a greater priority in their organizations over the past five years.
Security breaches run the gamut from digital information fraud and product theft to counterfeiting components and using technology devices in acts of terrorism. Left unchecked, supply chain infractions could cost companies millions of dollars.
More frequently, too, governments are taking on a hard line on determining who's responsible for such infringements. They have established new customs protocols and programs and passed legislation meant to curb these activities. As a result, companies are shifting their own long-standing supplier requirements and more carefully selecting partners, opting for ones who have demonstrated compliance with these new standards.
C-TPAT is one such example. The Custom Trade Partnership Against Terrorism program was started 10 years ago by the US Customs and Border Protection a couple of months after the 9/11 terrorists attacks. The program, which aims to improve the overall supply chain and increase security along the US borders, is voluntary. However, the ripple effect of “I will do business only with companies that have C-TPAT certification” has influenced more than 10,000 companies to join.
A similar thing is now happening in the aerospace and defense industries. Since the US government last year passed the anti-counterfeiting National Defense Authorization Act (NDAA), many OEMs serving this sector are reevaluating their supply chain practices and on-boarding suppliers that have proven track records for secure and safe products.
Take {complink 3153|Lockheed Martin Corp.}, for instance. The giant aerospace company recently signed a new strategic enterprise agreement with top-tier distributor {complink 453|Arrow Electronics Inc.}, which will cover procurement of more than 22,000 electronic components used in advanced technology systems such as missiles, satellites, radar systems, tactical fighter aircraft, and unmanned surveillance systems, according to the company in a statement.
Although Lockheed officials said the agreement allows the company to improve product delivery performance, standardize parts selection, and increase internal efficiency and productivity, Arrow officials cited the industry changes as an influencing factor.
“The changes in the aerospace and defense industry are accelerating, and this agreement illustrates our value proposition,” said Michael J. Long, chairman, president and chief executive officer of Arrow Electronics in the statement.
It's likely that the value proposition will only increase as more companies prioritize security. That means the job of moving products from one place to another will only get more complicated. Are you ready for that?
The use of Internet in electronic components supply chain is enabled everywhere. So the data is available to any one who can try and get it. This provides great security threat for any component transaction I believe the certifications and agencies like NDAA could help to ease out the tension and solve the counterfeit problems in suuply chain.
It is a simple situation: we have all spent forward, and must now spend less. This may mean a period of slow growth, or even declines as things come back into alignment. An example is real estate prices, just about everywhere, that went up in anticipation of high inflation. Historically real estate prices (on average) go up about 0.5-1% inflation adjusted; between about 1985 and 2000 they went up about 9%. We have to payback that aberraant gain. Growth in China has been spurred by building etc essentially funded by the G8 nations via offshoring and related transfers. That too will slow down.
Deflation is indeed a scary situation, but seems to me that we may be in for just such a period. Reserve banks and governemts should focus on managing the imminent deflation, rather than worry about excessive inflation. If they try to 'create' inflation it will only 'kick the can' a few more year out. Shift the pain even more so to the new generation. The baby boomers 'caused' this situation. We must address it.
AzmatMalik, You put it simply but with a touch of reality that seems to be lacking in discussion of economic growth these days. We expect companies to grow at a rate of 20 percent or more per year and if they don't we take them to task over it. We look for stock prices to keep going higher and higher on a daily basis and we expect wages to rise too at a fast clip.
We've spent and borrowed ourselves into a box but we want to complain ourselves out of it rather than accept moderation and slower growth until we clean out the mess.
I really liked your perspective about the slow down. I do agree it's better happen sooner than later. Slowing down is good because it will definitely rise and flourish later on.
AzmatMalik,
Interesting observation which I also happen to agree with. I would add that all of the G8 countries are carrying to much dept. These countries (USA etc..) need to reduce debt to below 10% of GDP. This target is absolutely critical for a stable world economy to emerge. Debt is the big elephant in the room and MUST be eliminated even though the process will be extremely painful.
AzmatMalik – Your observations are spot on, and like Bolaji mentioned these are the kinds of conversations we all should having – how can we add a dose of reality back to expectations.
elctrnx_lyf – Yes, it's all part of a cycle. The unfornatuate part is that we keep creating these more extreme cycles of extended feast and extended famine, coupled with unsustainable spending and then severe belt-tightening. Have to believe there is not a more moderate middle ground that would create greater stability and economic predictability.
Daryl – Good point. Big question is how to eliminate this debt? Countries keep trimming budgets in the name of austerity, but a serious dilemma emerges: When are you trimming fat and when are you trimming bone? Trimming fat is ok, but if you trim too much bone, countries won't be able to stand and hold their weight.
elctrnx_lyf – right, the Internet is a key tool, but like you said “the data is available to any one who can try and get it. That's the trick isn't it – make supply chain data accessible to the right people through the most secure channels in a way that doesn't slow down the supply chain.
The outlook is not super rosy but neither does it look disastrous. I imaging the big players will be able to manage their way through the abyss and hopefully come out stronger.
I think what matters more is where you cut spending on rather than how much you cut. If you cut down on the investments, you're aiming for a further decline in your economy. So you need to be careful about where the cut is taking place. Often this is the hardest decisions for governments to take.
I just wonder, in electronics, there are many experts more than capable to regulate power source, signal feedback, etc. Why not our economists worldwide could find a way to regulate our economy cycles ? I am very sure it is possible to stabilize our economy cycles, one way or another way.
FlyingScot – Right… the news is somewhere in the middle of the road and it's not much different than the news we've been hearing all along. The odd thing is that Wall Street seems to react as if the earnings news is a surprise and forgot that executives keep providing cautious outlooks.
@Flyingscot, i think Jennifer has used the right adjective “fuzzy” for the rest of the year picture. I like fuzzy picture than a clear rosy or damp scanrio as fuzzy signify hope.
Today's Business Insider begins as follows:
Goldman Sachs Chief European Economist Huw Pill exposes a terrible irony about the eurozone in a video filmed this month: at the signing of the Maastricht Treaty, both those who loved and hated the prospect of a European Monetary Union actually thought that the euro would see a crisis that would test its structural basis eventually.
The key difference between their viewpoints consisted of their approval or rejection of the progress that would need to happen to make the euro area sustainable, and whether the populace would actually consent to go through with such reforms.
Read more: http://www.businessinsider.com/goldman-huw-pill-euro-crisis-maastricht-treaty-2012-7#ixzz21qSpvTap
Exactly Flyingscot. This is not 2001 when the economy sank deep into a pit. This is a measured slowdown. Perhaps all of us should take a deep breath and calm down.
@FLINGSCOT,
Good thinking. Analysts may be blowing things out of proportion. We know that they are doing their job, but they are too must “alarmist” sometimes.
“Over in Germany, Siemens AG (NYSE: SI; Frankfurt: SIE) had even less rosy news.”
German economy has been in good shape compared to other european countries. Will that Siemens revenue loss have a significant impact on the country's economy?
Taimoorz, you are correct. The cost cutting measures should be applied to divisions or functions where the cut will not have an impact that will bring the entire structure down. For example, if you cut down the budget on education than in the future the country will face problems in getting technical resources for work. And, above all the upcoming generation will have lesser avenues of getting educated. Hence, the entire economy will suffer.
I think overall economic situation for Germany is much better than other countries. Siemens AG might have problems due to the electronics industry having problems in general. I donot think Germany is going anywhere in red, its situation is very strong.
All the executives in the world talk about the times of uncertainty and difficulties in economic predictability. the only way organisations becomes successful would be ready to accept some loss, some negative growth but still work hard with right investment going on.
@ electrnx_lyf
True. Its now more about comparatives. If two companies are sustaining losses, question now is, what to do to sustain the lesser loss. However, what should be of more concern to the analysts is the companies that are not giving breakeven results even.
@ Bolaji
Agreed. Its the frequent gossips that causes us to believe in the hype. Its just a slowdown and not a completely negative scenario. However, for European economists, its time to analyze that what factors can affect their long term competitiveness.
Nokia is a such a huge giant with so many dependant companies that bad news on its part badly reflects on others as well. Its partners, such as STM, might be thinking that their association with Nokia might get them label of partner of a weak company unable to find good alternates.
I've been listening to earnings conference calls for several quarters now and this nagging pessimism just isn't going away. Until this quarter, execs were generally philosophical about the market: not a double dip, etc.; btb on the upswing…but the results are pretty ugly. I might have just crossed over from skeptic to believer: just because you are pessimistic doesn't mean the market isn't in the pits…
Jennifer, you are right, there is a global economic slowdown, especially in EU countries. This financial outcome shows that such slow down has effect the turnover and profit of companies. I think from 2000 onwards, there are many twist and turns in economic conditions and companies are struggling hard for their business.