Covid Economics: 3 Ways OEMs Can Reduce Margin Erosion
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Forecasting is one aspect of supply chain planning that executive constantly works at, but the goal of making accurate predictions is still elusive to many. One analyst recently forecast that in the second half of 2015 there will be more disruptions at West Coast ports as they deal with the backlog caused by previous strikes and handle new shipments. He also said Mexico's ports will increase their business as they benefit from West Coast port troubles. Additionally, the electronics industry will continue to enjoy the benefits of lower prices in the Chinese metals market as China’s economy continues to weaken.
The analyst is Dean Ocampo, director of product marketing at Elementum Inc., a company that helps customers capture and interpret information that affects their supply chain. Essentially, Elementum’s analytics team monitors information such as recalls from the Food and Drug Administration or earthquake and fire data from the United States Geological Survey. The information gathered helps Elementum, and their customers, predict blips in the supply chain on a real-time basis which they can take action on before the situation worsens.
Following a recent Webinar entitled “The 2015 Supply Chain Benchmarks," EPS Contributor Nicole Lewis interviewed Ocampo about the company’s methodology, his interpretation of the data collected during the first half of 2015, and what that data means for the electronics industry.
Dean Ocampo
EPS: During the webinar you raised the question: “Why do people want to benchmark? You said the answer is that many companies use benchmarks as a way to compare themselves with their peers, some use it when they transform their business and implement new processes and smaller companies use benchmarks to compete against their larger competitors. With regard to the question of why companies are using benchmarks, what are you finding at companies in the electronics industry?
Ocampo: These trends hold true regardless of vertical. However, given the pace of change in electronics I see a little more of the drive to innovate [and the] drive [to develop] new products. This includes keeping a closer eye on suppliers when they are looking at their next new product introduction (NPI). You actually see a bit of a hybrid on the more aggressive, higher margin electronics companies where they want to have better supplier measuring and visibility to manage costs, but they tend to look closer at their performance benchmarks (escalations, resolution times) so they can act internally more like a startup.
EPS: You said Elementum monitors social signals as one of your inputs and if you look at the first half of 2015 you've looked at one billion signals over the first 151 days of the year. Through your analytics team you've also translated these social signals into events that you document on your website for your customers. In the first half of 2015 there were 1,000 published events. What is your definition of an “event” and how do you measure it?
Ocampo: An event is any specific activity that has, or has the potential to affect the supply chain. It generally has a time element and a physical location(s). There's a lot of secret sauce here and a lot of experience baked into both the engine that monitors, as well as the Elementum analysts who look at events. So maybe I'll use an example of one that cuts across both news and events.
Last year, we published exclusive news about the potential port strikes in 2015. This went to all our customers with intelligence on timelines and states as news rather than an event. We did this several times in 2014. As the port strike got closer, and individual unions or ports started announcing actions (thus has time and location specifics), these individual actions became "events" in our system and thus enabled mobile/email notifications so individuals [at client companies] could immediately know about it along with the context of what it meant for their business, as well as their product and/or category area.
EPS: You also said during the webinar that about 50 percent of events in the first half of 2015 were infrastructure related. The majority of those tended to be building fires, specifically related to supplier or industrial parks that had a material effect on suppliers. Of those building fires 16 percent were related to railroad issues, train derailment etc. Can you tell me more about this?
Ocampo: [This] is an interesting topic. We're seeing clusters of these around what I would call either "rust belt" areas as well as developing world areas. I'm guessing it's a combination of old abandoned buildings in the industrial rust belt spreading to their industrial park neighbors and lower building codes and access to timely emergency resources in developing areas. I haven't run a deeper analysis on it, [but I] just noticed it when we sat down with customers to look at their supply chain region by region [to look at] what's been happening.
EPS: We’ve had fires, tornados, and bad winter weather. Which one of the events you monitored hurt the electronics industry the most and why?
Ocampo: Port strike, port strike, port strike. Almost goes without saying. This entire area wasn't handled well in the industry. It was pretty well known going into 2015 that this was going to be an issue and yet goods kept getting onto ships and didn't really hit critical point in the general news until 30 ships were backed up at the Port of Los Angeles. And now, in the second half of 2015 people are still putting goods on ships at pre-strike volumes and the ports have not been able to catch up for a myriad of reasons -- lack of truck drivers just being one of them. This entire area is a red flag for the industry on the state of internal communication within supply chain departments.
EPS: As you look at reducing supply chain risk, you spoke about benchmark per 100 sites that a customer has in their supply chain. You said that roughly there is on average about one event per month that has a calculated impact on a company’s supply chain or 5.87 in the first six months of the year. Can you explain this further for supply chain managers in the electronics industry? How can this information help them?
Ocampo: There really are 3 pillars of what we are doing in this area where benchmarks are useful:
1) We put tools in place with which you can reduce supply chain risk using benchmarks.
2) We put capabilities (collaboration, mobile) around which people can receive and act on information fast.
3) We put measures in place to see how you are doing and enable you to methodically get faster.
The reason why I say this is that if you were just to call this "risk" as has been done in the supply chain it would be a misnomer. I'm seeing too many organizations obsess about probabilities of events and risks and still get caught by surprise. We believe you need to build in an understanding of business outcomes of risks. [We focus on] how you get globally dispersed teams to respond to events fast while they still have options, and that your organization has institutional knowledge with which to get better.
Now, the 5.87 is a normalized number over 6 months. The variation by verticals industries was -- industrial 6.63, healthcare/pharma 3.87, electronics 6.64. The average is 5.87. I needed to find a way to come to a common number, so that rate is the average occurrence of an event per 100 supplier sites. If you have 200 supplier sites, you'd have about 2 events a month. I know, it’s not easy to describe for an article, but it is a cleaner way for our customers to benchmark what they are doing.
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