From the October 2011 issue of Treasury & Risk magazine

So Long, Just-in-Time Inventory

In an interconnected world, companies aim to collect more data on where risks lie, use new tools and put programs in place to better ensure supply-chain resilience.

Large corporations, especially manufacturers, have sought since the 1990s to lower their working capital costs by reducing inventories to the bare minimum, requiring suppliers to deliver parts just in time, with little room for error. Consequently, they’ve outsourced production of parts to long chains of suppliers stretched around the globe. So while 10 years ago inflation in China and Brazil or the tsunami in Japan were important news, today companies are so tightly interwoven that distant events can quickly halt production, battering their bottom lines.  The danger to supply chains has been compounded recently by skyrocketing prices in commodities ranging from oil to metals to cotton.

But perhaps the biggest wake-up call was the financial crisis, which sent stock markets crashing from the fall of 2008 into 2009 and caused a drop in economic activity not seen since the Great Depression.

It helped that Xerox has been building a globally integrated platform to manage its supply chain for the last eight years. The company quantifies the risk of its primary suppliers annually, and it already works with many of their suppliers to understand the risks they pose. To make its supply chain even more resilient, Xerox is building visibility tools within its supply chain system and pushing those tools out to its primary suppliers and their suppliers.

The tools will ultimately allow Xerox to track the underlying components of its products not only as they move from supplier to supplier, but also as suppliers are building them. “The ideal state of resilience is to provide a predictable degree of supply, and tracking that is the most important part,” Tayler says.

Ensuring an adequate inventory of goods is a major part of the value proposition of technology distributors such as Tech Data and Ingram Micro, which supply resellers with products from many manufacturers.

Robert Gifford, executive vice president of global logistics at Ingram Micro, notes that the company operates 100 distribution centers worldwide and says events over the past few years have not prompted it to increase inventory levels. Providing “buffer inventory” is part of its business, so the retail stores that are its customers never run out of stock. Ingram Micro’s million-square-foot distribution center in Jonestown, Pa., was inaccessible for three days after Hurricane Irene in August, Gifford says, but similar facilities in Toronto, Chicago, Dallas and Millington, Tenn., enabled the company, with $34.6 billion in 2010 revenue, to never “miss a beat” in supplying customers who needed goods.

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