Tuesday, January 22, 2013

Should innovation and new product design be a key element when Planning Demand and Supply in a Supply Chain?

Should innovation and new product design be a key element when Planning Demand and Supply in a Supply Chain?

The art of coming up with meaningful projections of the demand for a product relies heavily on economic, political and social indicators, a fact long time known in the supply chain management world. But what happens when non-traditional factors have a direct effect on the demand of a good? More specifically, what happens when a company depends on the innovation and creativity of the industries to which it supplies?

In a recent article Sharon Stiefel discussed the role that lack of innovation in electronic products had in the high levels of chip inventory at semiconductor suppliers. As a result, semiconductor revenue is expected to decline in the first quarter of 2013 given the fact that chip inventory held by semiconductor suppliers reached record high levels in the third quarter of 2012. The article attributes this miscalculation of demand to key demand drivers failing to materialize, specially to the demand from new products that consumers purchased in the holiday season, which had its worst performance since 2008. This panorama is even murkier given the dire economic growth forecast for 2013.

The most affected products were Ultrabooks and PCs, which despite innovative models did not create the demand for semiconductors originally expected. Other gadgets with high demand, such as tablets and smartphones, did not produce the stimulus necessary to spur the demand of semiconductors either. Even Apple reduced its demand from its supply chain.

The article shows the vulnerability of companies not only to traditional economic developments, but to more fundamental economic factors such as innovation. Thus, the article leads to important questions. For example; is this failure in forecasting the result of market saturation? Or should the semiconductor industry look for new product design and innovation to target developing countries with huge unexplored markets? Perhaps the most important question relates to the limits of the third industrial revolution and the inexorable decline in productivity. In the meantime the art of forecasting demand has a new challenge.

Source: Stiefel, Sharon (2013) “Chip Inventory at Semiconductor Suppliers Reaches Worrisome High”, Design and Reuse, January 21. Available at: http://www.design-reuse.com/news/31207/end-of-2012-semiconductor-inventory-oversupply-how-long-will-it-last.html

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