Caught unaware: Will Beijing games signal supply chain snafus?

Jean Thilmany, contributing editor -- Manufacturing Business Technology, 8/6/2008 2:08:00 PM

The Chinese government’s attempts to limit pollution during the Beijing 2008 Olympic games is causing some U.S.-based manufacturers to adjust their supply chain strategies.

In an attempt to lift the pollution that surrounds Beijing, the Chinese government began shuttering a number of factories in the city and surrounding area three weeks before the games. Most of the closed factories will remain so through the Paralympics, which end Sept. 17. Also, the city’s 3.3 million vehicles are allowed on the roads every other day, as designated by odd or even license plate number.

These events caught many U.S. manufacturers unaware, says Bryan Larkin, director of strategy for retail and consumer product goods at GXS, a vendor of B2B e-commerce, EDI, and data synchronization technologies for streamlined supply chain operations. U.S. manufacturers that boast good relations with the Chinese government learned of the factory shutdowns well before they were publicly announced, so they had the opportunity to source and warehouse extra materials or otherwise plan for the interruptions, he says.

“So the closings may mean the well-connected companies aren’t even going to notice a change, but those that aren’t so well connected may be quickly trying to find alternative sources of components or finished goods to ship to the United States,” Larkin says.

Brad Feuling says the brouhaha over the shutdowns may be a bit overblown. He’s CEO of Kong and Allan, a Shanghai consulting firm specializing in supply chain operations.

“The closings mainly affect U.S. manufacturers purchasing components for intermediary products,” says Feuling. “Many companies that do that are careful of lead-time considerations, so they’re probably locally sourcing those for now rather than doing it in China.”

In fact, C.J. Wehlage, a director with Boston-based AMR Research, says the large U.S. manufacturers that rely heavily on electronics components from China—for example, Apple and Cisco Systems—had foreseen the well-publicized Beijing pollution might trigger closings and began planning for such a scenario a few months prior to the closings.

Apple, for instance, chose to push up the iPhone3G release date from September to July by stocking inventory in advance of its Chinese supplier closings. The release-date move made more economic sense than building, then warehousing, the phones in advance of the September release date, Wehlage says.

Still, the Olympic events should serve as a reminder for all manufacturers to take a closer look at how they source products and manage their supply chain, these experts say. After all, a weather event like the snowstorms that severely interrupted Chinese transport in February or a natural disaster such as the May 12 earthquake that shook the Chinese province of Sichuan mimic on a grander scale Olympic shutdowns.

Wehlage cautions that Chinese factories and drivers could still face unexpected restrictions. In the days before the Olympics, NPR reported that pollution still had not lifted from the area and some athletes wore face masks on the streets.

"The government isn't transparent," says Wehlage. "It could still take other measures."

Events like these serve as a wake-up call for manufacturers to avoid consolidating their supply chains and instead automate them, says GXS' Larkin.

“That way, if they come up against an issue, they can electronically transfer forecasts and order information to another supplier,” he says. “If you have to do that manually you’ll be in trouble. We all know that significant error is present in manual efforts, and they take time to set up.”

Feuling recommends network optimization software, which allows manufacturers to model supply chain scenarios, including supply interruption and supplier shutdown. Software users also can add variables to the scenarios, such as warehouse capacity and logistics plans. These modeling applications allow manufacturers to plan risk management strategies, Feuling says.

And Wehlage notes that large manufacturers already rely on the software, which helped them prepare for the Olympic events.

“Most of these big companies are constantly doing network optimization,” he says. “They’ve asked, which alternative supply can I put this on? What ports can we use aside from Beijing? Which transportation links? How much inventory can I build up? What would that cost?”

All are good questions, and supply chain-saavy manufacturers are getting good answers with the right technology in place.