Supply chain software no match for profit quest

If your family is like mine, the week after Thanksgiving usually consists of eating turkey. Lots of turkey.

There must be something wrong with our enterprise software inventory and supply chain management application, because this year, we once again miscalculated the amount of food needed for our Thanksgiving meal. And it isn’t as though we don’t appreciate the value of an inventory management system for the purchasing, production and distribution of the cranberries, mashed potatoes and pumpkin pie. Like most families, we’re always trying to lower the inventory in our refrigerator to decrease our working capital.

But sometimes it’s those silly guests. They tell us they are going to show up, and — well, something happens.

Of course, we probably would make too much food even if we were planning to feed only ourselves, but our gluttony is nothing compared with the overcapacity now facing the folks who make flat-panel LCD televisions. And while my family’s need for supply chain management is facetious, theirs is the real thing. But the question is whether the technology would have been able to stop the manufacturers from bringing on so much capacity.

LCDs have been coveted by just about every sports-watching, decorating-conscious or cartoon-entranced human being old enough to work a remote control. But envy doesn’t equal sustained profits. At around US$4,000, prices have been too high to lure many shoppers into buying a large-screen flat-panel TV. Low production volume is the main culprit. But now the profits of the flat-panel industry are about to experience the same sort of lethargy you get from eating too much turkey.

About 3 million of the 20 million television sets sold in the U.S. this year will be flat panels, but sales could be greater if consumers weren’t betting on a steep price fall in 2005.

And prices won’t simply fall next year — they will plummet.

Manufacturers and industry analysts estimate that prices could drop by 30 per cent in 2005 and even further in 2006. That means a flat panel that has a price tag of US$4,000 today will be under $1,000 by 2007, according to iSuppli, a El Segundo, Calif.-based market analysis firm.

What happened?

Manufacturers went crazy spending money to build factories at around $1 billion to $3 billion a pop. Ten new plants that gobbled up about $20 billion are slated to begin churning out flat panels by the end of next year. That should boost industry capacity by 70 percent, and more plants are on the way. Hitachi, Matsushita and Toshiba are in a joint venture to spend $1 billion to make flat-panel TVs in 2006.

As those production lines start to spit out flat panels, prices will crater.

Software was supposed to prevent this type of boom-and-bust cycle, but it doesn’t. It never will. Corporations will always pile into a market if they smell profit.

For some companies in Asia, LCD sales have helped boost profits. But for the leader in flat-panel LCD TVs, LG.Philips, the squeeze on margins has begun. The company reported a 15 percent drop in its third-quarter profit.

Falling LCD prices could also hurt Sony Corp., Samsung Electronics Co. Ltd. and TCL-Thomson Electronics, which makes the RCA brand.

So, where is all the fancy supply chain management technology? Where are those dashboards, those reports, those metrics that were promised? All the whiteboards in the world with arrows and colored markers don’t seem to have amounted to much when confronted with a booming market and potential profits.

Management hubris won’t be stilled by IT. It never was, and it never will be.

Pimm Fox is a London-based journalist.Contact him at [email protected].

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