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Boeing’s Errors Expose Danger of Flying Blind When Managing Your Supply Chain

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Whether you’re the manager or director of operations at an SMB or the COO of an enterprise, achieving operations excellence is your number one responsibility. A flatter manufacturing world — with globally dispersed supply chain teams — has made overseeing product development processes more challenging.

Boeing’s lack of visibility into the outsourcing and delegation to multiple tiers of suppliers came back years ago to haunt the jet program in a big way. The airline contracted with approximately 50 top tier suppliers, handing them absolute ownership of the design of their respective piece of the plane and management of its own subcontractors. Tardy attempts to rein in oversight of its suppliers was deemed to be dangerously too little, too late.

Unfortunately, Boeing is far from being an isolated case of supply chain failure.

Nutanix’s Senior Vice President of Operations David Sangster, who is heralded as one of the top operations managers in Silicon Valley, outsources almost all the company’s manufacturing needs. “We use over 50 active suppliers including contract manufacturers, distributors and key technology partners,” said Sangster. “We also use a platform approach to product design and a CTO process to reduce SKU proliferation and the need for additional engineering.”

Sangster admits that early efforts to manage Nutanix’s suppliers were not easy. The number and frequency of product development changes and complications of big data sharing among globally dispersed partners had become difficult. A big part of the problem was that his dispersed team was stuck relying on Excel spreadsheets and email to address complicated manufacturing issues.

“It’s embarrassing to admit, but we had several instances where the suppliers built the wrong version of the product,” said Sangster. It was ‘rev A’ all right, but the wrong ‘rev A.’”

Nutanix’s inability to effectively manage its expanded supply chain team resulted in costly rework with extra procurement, build, and test cycles that caused “totally unacceptable” shipping delays.

Fortunately for Nutanix, Sangster invested in a product development platform that gave him powerful Lord Sauron-like visibility across his supply chain. The result was Nutanix had one of the most successful IPOs in recent Silicon Valley history.

Like Sangster, Roost’s Vice President of Operations Jim Van Patten has teams distributed globally. He’s constantly asking “what-if” questions like, “What are the pros and cons of packaging the product here versus China or Europe? And what would be the cost? Or what would happen if I created a partial product, kitted it in China, and then packaged it and shipped somewhere else?”

Van Patten has learned to be fastidiously careful as to how he manages his contract manufacturers and supply chain.

“If I put all my suppliers and sub-suppliers in China what does that mean if there’s some kind of geopolitical event that closes the borders for a week or if China decides to move most of its manufacturing to the interior or if I find my Chinese supplier actually has a silent partner that takes over most of their capacity and I have to wait to see what happens,” he says. “How do I mitigate that risk? It’s the stuff that keeps me up at night.”

Sangster and Van Patten echo the question that every operations professional asks themselves when it comes to managing global supply chains, which is “do we have the visibility necessary to forecast pitfalls that could lead to shipping delays, costly failures and brand damage?”

For Palo Alto Networks’ Supply Chain Risk and Operations Manager Rachel Yabut, having visibility isn’t everything — it’s the only thing. Palo Alto Networks is leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. A big part of the company’s success is due to Yabut’s knowledge of the best practices needed to support successful end-to-end global supply chain management through development and execution of strategic planning.

Visibility is a big issue,” she says. “Companies like ours that are 100% outsourced put procurement and many supply chain issues in the hands of their CMs and — as a result — can lose visibility; for instance, you don’t always know what the CM has in the current pipeline, on order, inventory on hand, what channel the CM is buying through or what is being bought direct or through sub-tiers of vendors/distributors.”

She continues, “While we establish standard costs with our CMs, they negotiate pricing based on aggregated demand of all their customers — not just what we need. We don’t know the CM’s actual purchase cost vs. standard cost (or what we pay the CM). As such, you can lose visibility and control into costs and savings.”

Like Boeing, more and more companies are outsourcing and relying on globally dispersed teams to save costs and accelerate time to market. But unless well managed systems and processes are in place, the promise of outsourcing can quickly turn into a costly problem if an operations manager does not have visibility across the supply chain.

To learn how manufacturers can avoid supply chain failure, click here to download this supply chain whitepaper: Success Strategies of Operations Executives.