Don’t wait until disaster strikes to manage supply chain risks, says James Carbone. A proactive approach during sourcing offers a much safer solution.
While the need to manage supply chain risk is nothing new, it became a front-and-centre initiative for many electronics companies following the devastating disasters in Japan and Thailand in 2011.
The earthquake and tsunami in Japan and severe flooding in Thailand killed tens of thousands people and destroyed many more homes and businesses. These natural disasters also shut down production at many electronics manufacturers, resulting in buyers at electronics original equipment manufacturers (OEMs) and electronics manufacturing service (EMS) providers scrambling to find components and products needed for production.
Such catastrophes demonstrate the need to manage supply chain risk, but they are not the only reasons to implement a supply chain risk management plan. Labour issues including strikes and port shutdowns, political instability, counterfeit parts and government laws and regulations concerning environmental and corporate social responsibility also pose risks that can negatively impact availability of supply.
Of course, many electronics manufacturers have supply chain contingency plans to deal with a natural disaster that disrupts production or delivery of components. In fact, some electronics companies take a proactive approach to managing and mitigating supply chain risk by addressing potential issues in the design stage of a new product.
For instance, Cisco Systems has members of its supply chain team work with Cisco’s design team. The idea is to make sure that when a new product is designed there are multiple sources for each component.
Purchasers involved in new product introduction will try to minimise the amount of sole sourced parts on the board by using standard components whenever possible, rather than custom designed solutions. They will also try to ensure that parts about to go end of life never make it on to the bill of materials (BOM) of a new system.
Other companies work to identify potential supply chain risks with certain suppliers in specific regions of the world and develop alternative sourcing options. Finding multiple suppliers for a part is one option, however, in some cases the supply base for a component is limited.
A buyer may then decide to select a key component because the supplier builds the part in two or more locations. If a natural disaster knocks out production at one plant, the component will still be available because it is also manufactured elsewhere at an alternative facility.
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Electronics distributors are often an important part of any supply chain management plan. Broad line global distributors have large inventories of parts and can be a valuable source when a disaster or other event shuts down component production in a region. They can also provide market intelligence and updates about the impact on suppliers in the region of a disaster.
It’s worth remembering, however, that those who purchase most of their parts directly from component manufacturers need to have forged a close relationship with a distributor prior to a supply disruption. When a natural disaster disrupts supply, some distributors give priority to regular customers before selling components that are in short supply to other OEMs or EMS providers.
As one executive of a global distributor said: “our first priority is taking care of our supply chain partners when a disaster disrupts supply. Opportunistic customers go to the bottom of the list.”