Supply Chain Opacity: Looking through a Glass Darkly

Stephen DeAngelis

June 28, 2011

David Manners, a blogger who focuses on the semiconductor industry, asks, “Why is the Supply Chain so Opaque?” [Mannerisms, 28 April 2011] He made that query following the devastating earthquake/tsunami disaster that struck Japan in March. Manners was puzzled why manufacturers, like Apple and Acer — companies that are involved in “an industry which manufactures to tolerances measured in billionths of a metre, in which the researchers win Nobel Prizes and the salesmen have PhDs” — aren’t able to “forecast, plan, locate, track and measure [their] output.” Even months down the line, PC manufacturers were still unable to make accurate predictions for the rest of the year [“Acer warns of stress test for supply chain,” by Robin Kwong, Financial Times, 1 June 2011] Kwong continues:

“Acer, the world’s third biggest PC maker by shipments, warned that July would be the true stress test moment for the global technology supply chain in terms of disruption from the Japan earthquake and tsunami. Jim Wong, corporate president of the Taiwanese company, said on Wednesday the impact from the disaster in March had appeared limited so far because manufacturers and suppliers had been able to make use of idle stock. He also noted that the months from March to May were also traditionally a slow season for the PC industry, meaning that the supply chain had not yet come under a great deal of stress. But come July, the industry would really be ‘counting on the real output from factories’. He added that the problem could be compounded by the fact that many companies’ risk management strategies would have been compromised by downsizing in the aftermath of the financial crisis. A component that used to be produced in several different locations may now just be made in one factory, for example.”

Wong told Kwong that “a big part of the problem for PC brands such as Acer, which sit at the end of a long, complicated supply chain that involves hundreds of suppliers and manufacturers, was a lack of transparency about what was happening elsewhere in the supply chain.” Wong’s comments beg the question: “If manufacturers involved in the IT sector can’t find a way to obtain end-to-end supply chain visibility, is there hope for any other industry?” I believe there is hope; but, that hope is obviously tempered by the enormous challenges that have yet to be solved. Kwong indicates that the PC industry has been lucky. “The general sentiment among analysts and other executives,” he writes, “is that the impact from the disaster is turning out to be much milder than initially feared.” That assessment demonstrates a level of resiliency that seems to have surprised many analysts. Kwong continues:

“[Mr. Wong laments,] ‘We talk to our manufacturer one step upstream, and up to now they feel okay. They have also asked their supplier one step upstream and it is still okay. But … nobody knows whether three or five layers up there will be an issue or not.’ This meant that there was very little that Acer could do to prepare for potential problems emerging later. One reason for this opacity is the issues of confidentiality that surround highly specialised and sometimes privately held suppliers. Another factor particular to Japan was the conservative nature of the Japanese, Mr Wong said. ‘They always try their best to resolve the issues, so they will tell you that “we are working on that, and up to now there are no problems”, but there might be a problem in the end,’ he said.”

Anyone in the data business is familiar with the phrase, “Garbage in, garbage out.” If stakeholders in a supply chain provide bad information (either out of mistrust or a desire to save face), visibility throughout the entire supply chain is compromised. Supply chain analyst Trevor Miles asserts that “the cause of the supply chain opacity … is the degree of outsourcing, coupled with ever increasing product portfolio complexity, which is due to mass customization and shortening product life cycles.” [“Visibility, the antidote to supply chain opacity,” The 21st Century Supply Chain, 2 May 2011]. He continues:

“Statistical forecasting is a ‘large number’ tool that requires long histories and frequent sales to achieve a high level of accuracy. Digital cameras have life spans of six months and less. Smart phones have a life span of 18 months and less ? and this is decreasing even as the number of models and model variants explodes. The shorter life spans means there is little history to go on and the explosion of model variants is greater than the increase in sales volume. It is no wonder that consumer electronics companies can seldom get forecast error, as measured by MAPE at a month lag, below 50 percent. Forecasting at the product family level only makes matters worse because this hides trends that are critical to determining component and capacity requirements, even though forecasting at the product family level may lull you into a false sense of security by reducing forecast error.”

Although Miles makes the situation sound hopeless, you can tell from the title of his post — Visibility, the antidote to supply chain opacity — that he believes existing challenges can be overcome. He notes that some pundits insist that supply chain complexity must be decreased “by reducing the product portfolio”; but, Miles correctly asserts that “product portfolio complexity is required to compete in a consumer market with ever changing requirements.” So what does he recommend? He writes:

“I am the first to agree that a sound product portfolio analysis is something everyone should do, but outsourcing isn’t going away, neither is mass customization. So I say embrace complexity by providing visibility. But in today’s highly outsourced environment visibility must span several tiers of the supply chain from customer through OEM to contract manufacturer and on to the component suppliers. If you have distributors, then at least get a ‘sell through’ measure of demand, not just a ‘sell in.’ But access to data across the supply chain is not visibility.”

Before reading Miles’ final thoughts, let’s pause to emphasize his last statement — “access to data across the supply chain is not visibility.” I couldn’t agree more. Libraries are filled with books to which the general public has access; but unless a person actually picks up a book, reads it, analyzes its content, and changes his or life as a result, access means nothing. Information is only useful if something is done with it. Miles concludes:

“Without a manner in which to respond rapidly and profitably to actual demand, access to data adds nothing. But I agree, access to information across multiple tiers of the supply chain is a start. Being able to detect changes from the plan, understand the consequences of the changes on customer commits, capacity requirements, or component requirements, and evaluate alternative courses of action in both financial and operational terms quickly and effective[ly] is the clue to gaining visibility. Only this will reduce the opacity in today’s supply chains.”

Capgemini Consulting reports that a recent survey indicates that business executives are determined to make their supply chains more visible [“Supply Chain Execs Determined to Improve Visibility as Outlook Remains Volatile,” SupplyChainBrain, 20 May 2011]. The company’s press release states:

“Although the general economic outlook at the start of 2011 seems positive, a significant number of the respondents to this year’s Capgemini Consulting survey indicate they are uncertain about market demand in 2011 and that they are therefore determined to improve visibility in the supply chain. The study reveals that the top two business drivers for supply chain executives in 2011 are operating a reliable supply chain in a volatile environment, while simultaneously dealing with rising material costs.”

According to the release, “40 percent of respondents answered that demand volatility was their number 1 business driver.” It should be encouraging to supply chain professionals that supply chain reliability now gets more mention than cost cutting. There will always be a tug-of-war between lean processes and resiliency; but, the edge should go to resiliency. The press release continues:

“Meeting this twin challenge will mean improving control of both the internal and external supply chain. Consequently, when the respondents were asked to name their top supply chain projects in 2011, improving supply chain visibility ranks as top for 45 percent of them. Visibility was defined as knowing where products and inventories are, being able to monitor order progress and being able to anticipate unplanned events in the supply chain, like delayed transport or non-conformance quantities in the production process of subcontractors. Business process redesign (44 percent), business innovation (41 percent) and improving long term (demand) forecasting and planning (41 percent) follow closely on the list.”

The release indicates that “300 leading companies participated from various sectors in Europe (59 percent), the U.S. and Canada (25 percent), Asia-Pacific (10 percent) and Latin America (6 percent).” The survey was enhanced using “face-to-face interviews with 30 senior supply chain executives, which provided additional insights.” Download a full copy of the report at:

There are numerous companies claiming to offer supply chain visibility solutions. As the above discussion reveals, the most they can really promise is partial visibility because access to data requires the cooperation of stakeholders all along the supply chain. Any visibility is a good thing. As the Dutch philosopher Desiderius Erasmus wrote hundreds of years ago, “In the land of the blind, the one-eyed man is king.” In the Christian Bible, the apostle Paul indicates that seeing the future is often like looking through a glass darkly. When it comes to the supply chain, the more data a company has access to the less dark the glass becomes. Most supply chain analysts that I have read agree that improved visibility is one of the hallmarks that will distinguish superior supply chains in the coming decades.