Caught unaware: Beijing games signal supply chain snafus ahead

The Chinese government's attempts to limit pollution during the 2008 Olympic games in Beijing have some U.S.-based manufacturers adjusting their supply chain strategies. That's because Chinese government began shuttering a number of factories in the city and surrounding area three weeks before the games, and the city's 3.


The Chinese government's attempts to limit pollution during the 2008 Olympic games in Beijing have some U.S.-based manufacturers adjusting their supply chain strategies.

That's because Chinese government began shuttering a number of factories in the city and surrounding area three weeks before the games, and the city's 3.3 million vehicles were limited to road travel as designated by odd or even license plate numbers.

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. 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, Larkin says.

“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,” says Larkin.

Brad Feuling says the brouhaha over the shutdowns might have been a bit overblown. He's CEO of Kong and Allan , a Shanghai-based supply chain consulting firm.

“The closings mainly affected U.S. manufacturers purchasing components for intermediary products,” says Feuling. “Many companies that do that are careful of lead-time considerations, and sourced those locally 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 chains.

Says GXS' Larkin, “If they come up against an issue, they can electronically transfer forecasts and order information to another supplier. If you do that manually, you'll be in trouble. 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.

Wehlage says many large manufacturers already rely on network optimization software, which helped them prepare for the Beijing events.

“Most of these big companies are constantly doing network optimization,” says Wehlage. “They've asked, which alternative supply can I put this on? What ports can we use? 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.

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