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Information Systems

Obsolescence
From the perspective of the factory, there may be an upside to anticipating production: aligning with the production of similar but unrelated projects. But this can create huge risks for a project supply chain. The size and complexity of the projects, along with the fact that they are often negotiated with public institutions, means that things can change, even after the order has been signed. If production is anticipated, the supply risks generate huge obsolete inventory risks. Given the inflated lead times, the chance of this occurring is higher than in make-to-stock supply chains, which are under constant pressure to be reactive.  

The head of S&OP at the industrial company added: In many instances when there is government-type financing, the customer asks for something a little different and doesn’t get the government funding. Those things can happen, and depending on the robustness of our customer contracts, we may end up with finished goods that were engineered to order that the customer will never take and will we will never invoice. 

“It depends on our practice of contract management. If you combine bad contract management with customer changes, then you may end up with obsolescence.” 

In a make-to-stock supply chain, obsolete inventory is usually the result of a decision to discontinue a product or a refusal to use alternate channels. In a project supply chain, there is likely no alternative if an order falls through after production has begun. This is yet another reason why communication along the chain to commercial actors is so critical. 

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