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Points of Emphasis When Developing a Strategic Supply Chain

Sept. 15, 2023
To bolster operations and build a more strategic supply chain that can succeed in the future, stakeholders must master data analytics, complete a digital transformation and open the door to adopting AI.

Supply chains have been placed in a new spotlight ever since coming out of the COVID-19 pandemic as realizations of the fragility of some supply chains came to light. Since then, organizations are looking to bolster operations to develop more strategic supply chains.

This bolstering process begins with an internal assessment and a willingness to plan ahead, notes Margaret Cunha, senior director of Supply Chain Solutions at DigiKey.

“Where are your weaknesses? Where are your gaps? You need to plan for a problem,” Cunha advises. “If you are not anticipating for the problem, that is generally when an issue occurs, and your supply chain fails.”

As more and more businesses take note of the lessons learned as of late and begin preparing for what’s ahead, major trends have been developing across the supply chain industry. The three major trends Cunha emphasizes organizations must master to navigate the future are data and analytics, digitalization and artificial intelligence.

Data and Analytics

Establishing a more strategic supply chain begins with the data.

“You really cannot set a strategy without starting with the data,” Cunha stresses. “You have to know what you have and where you are before you can figure out where you are going to go.”

Organizations should begin by truly understanding and accounting for their space. Consider one’s product family, the goals of production and the components needed. Align with the engineering staff.

“Is there a richness in the technology? Are you using a special microprocessor? Are you using an ASIC for a technology advantage?” Cunha asks. “Where are you going to be building it? Is it going to be in multiple locations or are you going to be focused in one low-cost region? Are there special requirements necessary for the manufacturing? Are there special regulations, certifications or testing that is going to be needed?”

One area of particular emphasis should be the bill of materials.

“There may be some components that only one manufacturer can produce,” Cunha notes. “That will add complexity to your supply chain. You may want a special contract with that supplier for that device to make sure that you always have assurance of supply.”

On the other hand, there may exist a host of components manufactured by many different suppliers, in which case there are alternatives that can be planned for in a bill of materials—establishing strategic flexibility within the supply chain.

“All of these pieces come together and they make the supply chain a lot more complicated,” Cunha says. “But it’s also fun to put the puzzle together and then decide what the best strategy is not only for your finished product, but the components that will be needed to build it.”

Gathering the necessary data throughout a supply chain’s operations is just the beginning. The succeeding actions should focus on analyzing that data in the context of the total cost of ownership, a pivotal concept as businesses strive to do more with less.

When analyzing the data, it helps to have it gathered in one place. DigiKey offers bill of material management tools such as myLists where users can upload an entire bill of materials and be presented with a list of components, that are readily available, and their price points. Furthermore, myLists can notify users if select components are at the end of their lifecycle or possibly obsolete. Access to such data allows for strategic planning of product launches in order to avoid unavailability in the future.

“It is a helpful tool that offers the procurement professional a fast response time to a bill of materials analysis. MyLists can provide alternates for components, provide an estimated cost based on the number of assemblies being built and provide component availability and pricing in minutes,” Cunha says.

DigiKey also offers other data-focused tools on their website such as conversion calculators and cross-reference capabilities, a TechForum, reference design libraries, data sheets and parametric searches by component.

Digital Transformation

Just as a strategic supply chain is only as good as the data it is built upon, so too is its efficiency bound by the ability and speed in which participants are able to access and share information. This is the core concept of the digital transformation trend.

A strong example of the power of digital transformation can be seen in application programming interfaces (APIs). For instance, EDI, or Electronic Data Interchange, has been in use for quite some time. The protocols are in place and translate procurement processes electronically. Whether it is sending a forecast, accepting a forecast, pushing an order or accepting an order—all electronically—it is limited by existing parameters.

Today’s procurement professionals are integrating APIs to customize and expedite such processes previously executed through EDI.

“The beauty of an API is that data can be transferred faster than with EDI and can be more adaptable. Customers can utilize an API for direct, real-time data and have the flexibility to code how the data is used versus EDI in which the protocols are very established,” Cunha notes. “We have some customers today that have utilized our search and availability API at DigiKey where their system communicates with ours and completes a search based on a list of components.

“They are looking for product availability—inventory that we have on hand—and they need pricing,” Cunha continues. “If they find the component is available and the price meets their price points based on the way in which their algorithm is written (which is super-flexible), then that will automatically release an order based on their requirements.”

The efficiency gains of such API leverage are ample for procurement teams. Gone are the morning material requirement plannings, as now orders can be placed prior to arrival in the office.

“Digital is changing how supply chain is managed,” Cunha says of API usage. “It is making the overall procurement job more strategic. And it is giving the buying community more time. It’s taking the heavy lifting from chasing parts and searching for components; the system is able to do that. Now where you need more of a human interaction, maybe in a price negotiation or expediting conversation with the supplier, your team has the ability to focus on where they are most needed and can provide the bigger value to your bottom line.”

Artificial Intelligence and Machine Learning

As industry leaders forge toward more strategic supply chain operations, all options are open to consideration, including the rising surge that is artificial intelligence (AI) and machine learning (ML).

Though relatively newer technologies, the integration of AI and ML should not be dismissed; at the same time, diving in head-first may be ill-advised.

“Start small,” Cunha cautions. “Start with baby steps. If you do not have an ERP system set up to drive your forecasting, that would be initially the first thing I would want to do. If you do not have an API or some sort of EDI communication that is working with your suppliers and your manufacturing partners, start there, because AI and ML is on most roadmaps right now, but most companies are still trying to figure out how to use it for modeling and day-in day-out type of management.

“As AI and ML become more mainstream, there will be applications that will automatically become obvious,” she continues. “One that I think will be natural is the understanding of risk. The risk mitigation of a component in your supply chain will become an easy way to use a machine learning tool to understand, ‘If I design in this component, what is my percentage of risk based on share of market consumption and the target audience?’”

Cunha poses an example in which a manufacturer of a part for, say, the industrial space, has a very targeted mindshare, market share and volume goal—when an engineer in an unrelated industry finds the datasheet. Said engineer may reveal a nuance to the part and spec it into a consumer device. Now, the manufacturer’s volume demand increases unexpectedly due to this new application of the part. AI/ML may be able to anticipate the potential offerings and provide a better anticipated demand for your product.

“It’s anticipating where you think the market is going to go and where that demand picture is going to go,” Cunha says. “That’s where it’s going to be really interesting to see what machine learning or an AI-type of predictor could become for supply chain risk mitigation.”

The Importance of a Strategic Supply Chain

The importance of a strategic supply chain is “the ability to make sure you have the right amount of components, at the right price, when you need it,” Cunha references, following the supply chain breakdowns of the pandemic. “Not too much, not too little; just enough.”

Procurement professionals and stakeholders focused on the supply chain should always be looking ahead, planning-centric, and open to adopting digital technologies to reinforce their purchasing strategies.

“You can have the best design, and it can be fantastic, and customers can want it all day long, but if you cannot build it in a cost-effective manner and produce it fast enough for the customer to consume, the company generally does not do well,” Cunha surmises. “It’s a balance. And from what I’ve experienced, the supply chain team tends to be a glue between other areas of the business to make sure that all of it reacts in the right way for the right reasons.”

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About the Author

Tyler Fussner | Managing Editor - Community Manager | Supply Chain Connect

Tyler Fussner is Managing Editor - Community Manager at Supply Chain Connect, part of the Design & Engineering Group at Endeavor Business Media.

Previously, Fussner served as the Associate Editor for Fleet Maintenance magazine. As part of Endeavor's Commercial Vehicle Group, his work has been published in FleetOwner magazine, as well as Bulk TransporterRefrigerated Transporter, and Trailer-Body Builders.

Fussner's May 2022 print feature 'The dawn of hydrogen trucks' was named the best single technology article in B2B by the judges of the 2022 Folio: Eddie and Ozzie Awards. Fussner was also awarded Silver in the Technical Article category for the Trade Association Business Publications International (TABPI) 2021 Tabbie Awards.

Fussner previously served as Assistant Editor for Endeavor's Transportation Group on the PTEN, Professional Distributor, and VehicleServicePros.com brands.

Fussner studied professional writing and publishing at the University of Wisconsin-Whitewater. He has experience in shop operations, is a Michelin Certified Tire Technician, and a Michelin Certified Tire Salesperson.