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Why the Supply Chain Broke Down

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DQI Bureau
New Update

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.


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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.

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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

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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.

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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.

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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

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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.

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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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