Business Section or Obits

Feb. 1, 2001
Dot-coms are more susceptible than most companies to supply chain glitches.

Business Section or Obits?

Your company takes a dive in the stock market. Well, you say, it’s happened before. We’ll get through it. But the last time it happened, fingers weren’t pointed at you.

That’s right, the Wall Street gang is starting to notice material handling in the plant and warehouse. Those are the supply chain’s pressure points, but until e-commerce started getting ink in The Wall Street Journal, those domains were cloaked by layers of bureaucracy and ignored by the bean counters. Well, lucky you. You’re not going to be ignored any more.

According to a report from the Georgia Institute of Technology, supply chain malfunctions are being blamed for stock price tumbles and long-term losses. The report says stock prices plunge an average of 8.62 percent and shareholder wealth decreases by $120 million or more when a company suffers production and shipment delays. What’s more, the researchers found that stock prices continued to slip for three months after the announcement of these service failures.

"The market takes a very dim view of supply chain problems," said Vinod Singhal, associate professor of operations management at Georgia Tech, and one of the study’s authors. One of the most common sins committed by these poorly performing companies is parts shortages. Shortages have many causes, and they all boil down to poor planning and lousy execution. Still not convinced what you do means life or death to your company?

It means more. It can influence your entire industry. The fulfillment failures of Christmas 1999 haunted on-line toy retailers this Christmas as well. As of December 2000, eToys’ holiday sales were far below expectations, even after a massive infrastructure buildup this year. The Wall Street Journal said that the company can no longer predict profitability by 2002 and that "the magnitude of the shortfall shocked analysts and cast a pall over the entire electronic-commerce sector."

Analysts speculate that eToys’ reputation took a hit when it "failed to deliver a small percentage of packages on time." These types of small failures in the on-line toy industry eventually infected healthy competitors. For example, when went public in the fall of ’99, a share of its stock sold for $14. By the same time in 2000, those shares were going for $2 — and this company met customer demand last Christmas.

Toy companies aren’t alone — nor do e-commerce companies hold a monopoly on the malfunction market. Any company with a high growth curve is vulnerable to supply chain failures. If your products have shorter life cycles, your customers are demanding quicker delivery and your profit margins are getting skinnier, you’re getting into the same boat with the toy people. If you work for a small company, be careful getting in that boat. Fulfillment failures will probably affect a greater percentage of your sales.

Even if your company can afford the material handling technology to fix a failing supply chain, it might be too late. Material handling shouldn’t be used as a fix. It should be engineered into a strategy and managed as a utility. Customers turn on their faucets and expect water to come out. Delivery is taken for granted. The same lack of thought is given to their supply chain plumbing — until it breaks.

A supply chain gets its strength from its material handling infrastructure. You’re part of it. And whether they know it or not, so is your top management. Get their buy-in at the design stage of your next material handling system project. Need help? Show them this editorial. Show them any edition of The Wall Street Journal, for that matter. What you do as a material handling manager is making the news. For your career’s sake, make it good news.

Tom Andel


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