Apr

22

A news item in the Financial Times reminds me of technology industry component shortages:

"Vichai Sriprasert, president of Riceland International, a leading rice exporter in Bangkok, said several of its customers, including governments, were buying far more than they usually did amid fears about scarcity.

'It is panic,' he said. 'My customers are demanding double the usual volume. We would not have enough supplies for all the demand we are facing.'"

When faced with a component shortage, my company allocated the available supply among its customers using techniques such as filling X% of each customer's open orders. Customers learned how to maneuver for larger allocations. When told their deliveries would be delayed because of a part shortage, many customers doubled or tripled the sizes of their orders, trying for a more favorable position in the queue. The book to bill ratio would soar as more orders poured in.

The new orders greatly increased projected component demand. The hapless supplier that was already unable to deliver sufficient material now would now be told we needed twice as much. Our executives would call the supplier's CEO demanding an action plan for when we could get parts.

At some point, the parts would finally flow through, and we would begin to make some shipments against our huge backlogs. As soon as we started shipping full orders, customers would cancel all the extra orders they had placed. Manufacturing managers called this phenomenon the "dreaded diamond". The usual result was a large inventory writeoff six months later as it became clear that all the hard work to increase supply had resulted in a mountain of inventory that could not possibly be used up before the technology became obsolete.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search