MSU study: Some companies can get too lean
Staff -- Purchasing, 7/15/2004 2:00:00 AM
A recent Michigan State University (MSU) study commissioned by AT&T found that supply chains become increasingly fragile as manufacturers move to a lean inventory model. MSU researchers reviewed three manufacturing companies with strong business continuity plans, including a U.S. plant of a large international aerospace supplier, a large European telecommunications corporation and an electronics manufacturing firm and concluded that when something does go wrong in supply chain, the event and the resulting disruptions can have a significant if not catastrophic impact on the buying firm.
The study found two issues at the heart of most supply chain management problems: reduced visibility (often the visibility into the supply chain ends at the first tier supplier) and reduced control (the ability to influence and shape the actions of suppliers, especially at the second and third tier levels). The problems are compounded by the application of lean practices in the supply chain, reducing buffers in the form of inventory, lead time and capacity. Consequently, many managers are unaware of what their suppliers are doing to ensure business continuity. "With so many companies depending on a reduced set of suppliers for key components, the potential for problems is real and increasing. If a key supplier is unable to perform, the impact on the firm—as measured financially, strategically, and in terms of market share—can be sizable, even catastrophic," the study reports.
The research found that managers working within "best practice" companies have developed an awareness of these potential risks and introduced systems and procedures to manage the risk. The result is not only better performance, but the emergence of a potentially important competitive advantage.
Now Playing: 