Why the Supply Chain Broke Down

The
Inventory Mess

FAULTY FORECASTS
Suppliers now have access to the latest demand data, but forecasts by
electronics and telecom companies are often inflated.

FUZZY FINANCES
Manufacturers have given contractors and distributors more control over
procuring parts. Now, it’s unclear who owns excess inventory.

COMPLEX SOFTWARE
Software programs have greatly boosted efficiency in planning and
just-in-time delivery, but can be difficult and costly to use.

The scene on February 26 was a conference room at the Anaheim Marriott Hotel
booked by a California consulting firm Technology Forecasters. Seated around a
square of long tables, 33 executives from across the electronics industry–big
telecom networking companies, distributors, component makers, software
providers, contract manufacturers big and small–gathered to mull the
once-again hot topic of supply-chain management.

But in no time, the sparks were flying. At issue: Why, in this supposed age
of just-in-time delivery and razzle-dazzle e-business technology, is the US
electronics industry now sitting on an inventory pile-up that could take at
least six months to flush out? Moreover, who will end up footing the bill for
carrying all that stuff now that the line between buyer and seller has been
blurred by outsourcing and virtual alliances?

While the finger pointing is only likely to get nastier–and could lead to
litigation–the economic breather may end up doing the industry some good. It’s
undeniable that the revolution in information technology and management
practices over the past decade has made US industry vastly more efficient and
could make this downturn relatively brief. But beneath all the boasts of
flexible manufacturing and transparent supply chains, a lot needs to be done to
improve the workings of the New Economy. The problems include flawed flows of
information, software tools that are too difficult and costly to use, and
confused lines of responsibility.

Lesson One is that killer software applications can’t compensate for
old-fashioned business judgment. There’s a flaw in the premise that technology
can synchronize every party in the product chain by providing a transparent view
of supply and demand: The forecasts driving the entire flow of work are still
concocted by people, not by real-time blips of data from retail shelves. No
matter how mechanized the system becomes, sales managers and CEOs still shoot
for the moon in a boom, and don’t share internal market intelligence with
outsiders.

The experience of Solectron, the world’s biggest electronics contract
manufacturer, is a case in point. Last fall, company officials say they could
tell a supply glut of telecom equipment was brewing. Each of their big
customers, which include Cisco, Ericsson, and Lucent, was expecting explosive
growth for wireless phones and networking gear. But since Solectron supplies
every major player, it knew the numbers didn’t add up, even under the rosiest
scenarios.

Optimism overload

Nevertheless, the telecom giants told Solectron and other contractors to
produce flat out, assuring them that they would pay for excess materials. But
when the bottom finally fell out and its clients ordered production cutbacks, it
was too late for Solectron to halt orders from all of its 4,000 suppliers. Now,
Solectron has $4.7 billion in inventory.

There is also a real problem integrating the plethora of software used
throughout the supply chain. Software companies like SAP, Oracle, and i2 sell a
host of tools that link materials suppliers to purchasing departments to
engineers to factory floors. Problem is, “the tools are overhyped,
underdeveloped when they are sold, and require immense resources to bolt them
together,” says Bob Flowers, senior sales manager of chipmaker Xilinx.

Lots of better Web-based software solutions are in the pipeline. But
technology still won’t cure the problem of sloppy management and forecasts. If
nothing else, the shakeout, which will surely feature hefty write-downs for
whomever ends up stuck with the inventory hot potato, will underscore the
financial risks of accepting overly optimistic estimates and lacking the
willpower to curb production. It also will send a message to companies that let
wishful thinking get the better of them: They should use the slowdown to relearn
some business basics.

By Pete Engardio in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

Recharging

These dog-like robots built by Sony were the football champs at the1999 RoboCup in StalkholmNow
that the underpinnings for smart robots are falling into place, researchers in
dozens of corporate and academic labs are racing to develop working models that
within a few years may become our cohabitants and co-workers.

Personal robots won’t even approach their full potential in this decade,
but robot makers have already fielded many commercial previews. Although
sometimes clumsy and unpredictable, service robots are functioning as guards in
warehouses, delivering hospital food trays, and carrying documents from one
office to another. The Japan Robot Association (Jara) estimates that by 2002,
some 11,000 service robots will be deployed, 65% of them in hospitals and
nursing homes. By 2005, give or take a year, Jara projects that health-care
robots will be a $250 million market. As for personal bots, a panel of industry
and academic experts last year predicted they will be as common as PCs and cell
phones within 10 or 15 years.

One of the first robo sapiens on the market will be Honda’s Asimo, a
1.2-meter-tall android that resembles a child astronaut. It strides confidently,
climbs stairs, and negotiates corners. It can turn out the lights, and to show
off, walk a figure eight or compete with Sony’s SDR bots on the dance floor.
The hitch is that Asimo currently is blind, deaf, and dumb–and must be
remotely controlled. This fall, for an undisclosed fee, Honda will start renting
Asimo to companies and museums for use as a visitor’s guide.

Personable

Sony has already proved that mechanical companions are a promising market.
Now, sales of entertainment robots, it believes, are primed to explode. These
include electronic critters like the $1,500 Aibo, which can learn tricks and
respond to voice commands. The latest model looks like a lion cub. Over the next
five years, an expanding menagerie of mechanical pets from Sony and others could
whet consumer demand. And then, around mid-decade, Sony’s acrobots should hit
the market–probably at prices comparable to a high-end PC. Come the 2010s,
predicts Toshi Doi, head of Sony’s Digital Creatures Lab, each of Japan’s 46
million households will have two or three robots, including a humanoid.

Researchers everywhere are equally fascinated by the potential of home robots
and cyber-companions. Ironically, some European and North American labs are
counting on biological approaches to help produce mechanical beings–a tack
called evolutionary robotics. The basic idea is to raise a machine like a child,
letting it learn from its own experiences and sensory impressions, rather than
feeding it canned software written by humans.

MIT’s Cog and Kismet are probably the most famous of the self-educated
bots. Cog is the brainchild of Rodney Brooks, head of MIT’s AI Lab. This
humanoid torso has been learning to interact with its surroundings and with
people since its "birth" in 1993. Cog has mentally progressed to the
crawling-infant stage–although its legs have yet to be attached. Cog’s face
is less expressive than Kismet’s, but even so, it can be engaging. Its camera
eyes track moving people, and it establishes eye contact with people facing it.

No matter how personable Cog may seem, fulfilling Brooks’s dream of a robot
with human-level intelligence remains on the distant horizon. Still, many
experts believe truly smart robots are inevitable, given the ever-growing power
of computer chips.

Frustration

There are a lots of BEAM proponents in Europe–and many researchers there
also share Japan’s view of the near-term need for personal robots. For
example, Germany’s Fraunhofer Institute has developed Care-O-Bot, to help
elderly and infirm people maintain independent lifestyles. It can guide and
support people who are unsteady on their feet, run errands around the house, and
operate home electronics.

In the US, though, getting the funds to turn robot research into a going
business has been a problem, laments Joseph Engelberger. Widely hailed as the
father of the industrial robot, Engelberger co-founded Unimation. 40 years ago
and created the factory-robot industry from scratch. After cashing out in 1983,
he founded HelpMate Robotics to build service robots. His flagship: wheeled
cabinets that scurry around hospitals, distributing medicines and patient
records. But Engelberger always had his eyes on domestic robots because the
market potential is clearly far bigger.

In 1997, HelpMate built a two-armed, wheeled prototype for NASA to evaluate
as a helpmate in space. Engelberger intended to adapt it for home use, since its
touch-sensitive hands and two arms could make beds and prepare meals for
seniors. But it was not to be. He couldn’t raise the $5 million he needed to
bring it to market, and financial problems forced him to sell the company in
1999. This lack of interest in robotics puzzles the Japanese. Many reckon it’s
because Hollywood often depicts robots as monsters, whereas the Japanese view
them as helpers.

As a result, Japan has amassed a formidable stockpile of robotics knowhow,
producing twice as many as the rest of the world combined.

Furthermore, Japan has an army of young, savvy robotics experts. Close to
half of its 4,500 registered robot engineers are focused on AI or related
disciplines aimed at enhancing robot intelligence.

Song and dance

Shoestring budgets at Waseda University and other academic labs nourished
Japan’s early robot dreams. Now, well-heeled Japanese corporations are
transforming research into commercial products. Backed by ample resources,
corporate engineers are now busily refining sensors and rewriting algorithms to
create more sophisticated machines.

As margins dwindle on consumer electronics and industrial equipment, Japan’s
manufacturers are desperately seeking new genres of products. Smart robots that
combine a virtuoso entertainer, flawless social secretary, compliant
maid-butler, patient listener, and multimedia communications system could be
just the ticket. Such companions could record the passing years and regale
people with intricately detailed multimedia stories of family triumphs and
personal exploits. Anything that owners forget, their cyber-companions would
remember.

The chief blemish on Japan’s bullish outlook is that buyers might expect
too much from the first crop of bots. Early androids may not have enough finesse
to poke around inside packed refrigerators, and people might be wise not to
trust them to iron shirts. "Just because robots can sing and dance doesn’t
mean they’ll soon do everything," cautions Shigeo Hirose, a robotics
professor at Tokyo Institute of Technology. Aibo the robo pet has proved they
don’t have to. Robots can ease their way into our lives, step by mechanical
step.

Irene M Kunii and Otis Port–BusinessWeek

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