Bringing Wall Street Techniques To The Supply Chain - InformationWeek
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Bringing Wall Street Techniques To The Supply Chain

Vivecon's software puts its own spin on risk analysis for manufacturers.

Wall Street's hedging and risk-management techniques now can be applied to help manufacturers optimize tooling, capacity, and sourcing decisions. Vivecon Corp. on Monday added to its Supply Chain Risk Management suite two new applications: Strategic Component Supply Manager, which quantifies risks and helps manufacturers develop hedging strategies to account for unpredictable swings in demand, and Tooling and Capacity Manager, which assesses likely demand for an offering and monitors market acceptance.

Agilent Technologies Inc., a high-tech manufacturer of capital equipment for the electronics industry, is an early adopter of the products. "We are the poster child for demand uncertainty," says Chuck VanDam, supply-chain engineering manager at Agilent. "It's a natural thing for us to be interested in supply-chain risk and flexibility management."

A few years ago, Agilent worked on a 56-week lead time for supplies for its chip- and board-testing hardware, which meant that it had to place orders to suppliers far in advance of actual demand. Not only did the long lead time create problems for getting products to customers when they needed them, resulting in lost revenue and market share, but it also got clobbered when the downturn in the industry hit, and it was left with inventory carrying costs, VanDam says.

Agilent doesn't want to be in that situation again. Vivecon's software helps the company hedge its bets, alerting Agilent about availability constraints, price fluctuations, and liability exposures. It can analyze a contract that guarantees a certain range of supply availability against potential demand, "and the software helps us decide how much we should pay for that flexibility," VanDam says.

The Tooling and Capacity Manager software lets Agilent act on capacity expansion options when demand hits a predefined level, as opposed to making capacity and sourcing decisions months or years in advance and risking winding up with too much unwanted inventory.

Vivecon's software presents a range of demand scenarios and with each option assigns a probability of risk. For example, it can suggest that there's a 70% probability that there will be 100 units of demand, a 50% probability that there will be 30 units of demand, and so on. It then comes up with recommended planning and procurement scenarios based on these options.

Vivecon's supply-chain suite has a presence in the consumer packaged-goods industries and among high-tech manufacturers, says George Devlin, CEO of Vivecon. Now it's focusing on bringing the software's capabilities to the automotive industry. "For the first time you're going to see manufacturers and suppliers anticipate the effects of change," he says.

Noha Tohamy, principal analyst of enterprise applications at Forrester Research, says Vivecon's Supply Chain Risk Management software is unique because, for the first time, financial risk analysis, which has proven to be effective in the financial space, has been implemented in the supply chain. Other software targeting this area focuses primarily on visibility and events management, letting manufacturers track their supply chains and alerting them if there's a problem, Tohamy says. But Vivecon's Supply Chain Risk Management quantifies risk and comes up with a plan before risk occurs.

The goal of the software is to guide manufacturers in their sourcing decisions, which can reduce sourcing costs, improve supply-chain availability, and reduce inventory-related liability, Tohamy says. "Vivecon is one of the first companies to look at supply-chain risk management exclusively in their tools," she says. "But I think the supply-chain risk-management area is gaining adoption in general, and this is the next generation of supply-chain visibility and event management."

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