High Tech, High Speed, High Stakes – Demand and Supply Determine Success
As the father of two boys, writing this blog post in the run-up to the holidays, I am far from unique in thinking about the recent and highly publicized release of new gaming consoles from Microsoft and Sony.
Sales of both the Xbox One and the PlayStation 4 reached a million in their first day on sale. Matching supply to that level of demand is a multi-faceted challenge – not only in getting the finished product to the store, but maintaining supply from high-tech component fabricators to keep assembly running smoothly.
Disruptions in supply can have significant cost implications: in 2011, with stocks and manufacturing facilities disrupted by that year’s earthquake and tsunami, Sony, along with Panasonic and Sharp, reported losses of tens of billions of yen.
This was an unpredictable, terrible event, but even in optimal conditions the high technology market can be merciless. The PlayStation 3 initially came off the production line with a manufacturing cost higher than the retail price the market could sustain. Sony therefore made a significant loss on each device sold, until greater efficiencies in production and decreasing component prices pushed down the cost of parts and assembly.
Even game consoles are serious business
If anything, the competitive pressures in the high tech space have become more intense since then. If chip suppliers cannot get their product into devices within weeks of manufacture, they start thinking about writing it off. Price is a huge issue, and downward cost pressure is passed from retailers to producers to assemblers and component manufacturers.
Optimized supply chains have done much to bring costs down to a minimum without a drop in product quality leading to expensive recalls and repairs. However, this optimization often comes at the expense of agility – which damages resilience and makes it harder to adapt to changes in demand, supplier issues or unexpected events.
How do we square this circle – taking complex supply chains and structuring them to be resilient, agile and cost-effective? It involves managing huge amounts of data, relating to products and supplier networks – your own and your suppliers’.
Vitally, this means being able to access and connect this information in real time, or near-real time. SAP performance benchmarking has shown that revenue loss from stock-outs could be reduced by 30% when concurrent material and capacity plans are generated multiple times per day. It also needs to be highly integrated – connected not only to the supply chain but to other systems in the value chain.
Again, SAP performance benchmarks show a 25% drop in time supplies spend taking up inventory space when delivery dates are integrated with material availability and manufacturing systems.
SAP’s Demand-Driven Supply Chain solution is designed to address that scenario in high tech industry, and other scenarios of similar complexity and immediacy. Accurate assessment of probable demand – by analyzing patterns of consumer behavior – helps to define how much product should go where to avoid outages or overstock, and how demand can be managed by pricing and promotional activities.
Supplier agility, pre-emptive solution mapping and collaborative response management enable rapid responses to short-term changes to supply or demand levels. The same agility extends back through supplier and manufacturing relationships – so a change in demand can be reflected immediately in new instructions to suppliers and manufacturers, and issues with manufacturing can be reflected by reorganizing shipping or moderating demand.
To make such a solution work requires the integration of multiple disparate and sophisticated systems. Big data storage and the massive speed boost of in-memory computing allow sophisticated analytics to process and interpret masses of data from multiple sources and model possibilities, and deliver information on the current status of key performance indicators directly to mobile devices, to facilitate rapid responses to emerging issues.
For more information on the demand-driven supply chain, and how SAP is making it possible, please click here. Or, to see how this solution fits into the SAP High Tech solution offering, take a look at the Solution Explorer page for high tech industry.