Cultivating better and stronger relationships is at the heart of any business strategy, and it’s increasingly important when it comes to navigating today’s complex electronics supply channel. Finding ways to cultivate strategic business relationships throughout the supply chain was a key message behind a talk given by Lynn Torrel, Avnet’s senior vice president for supply chain and global accounts, at this month’s annual meeting of the Institute for Supply Management. It’s also part of a broader message experts like Torrel are delivering in 2015, when issues such as security, analytics, and globalization are creating a heightened focus on supply-chain management strategies among original equipment manufacturers (OEMs), electronics manufacturing services providers (EMSs), and contract manufacturers (CMs) around the world.
“As the lines between customer, supplier, competitor, and collaborator continue to blur, members of the electronics supply chain must learn to better capitalize on opportunities that drive innovation and overall market growth,” Torrel said prior to her May 6 presentation in Phoenix, “Strategic Partnerships: The Key to Supply Chain Success.” She discussed how activities such as demand planning and collaborating on cost-reduction strategies can help supply-chain partners forge stronger relationships that can, in turn, lead to those all-important growth-driving strategies.
For Torrel, these issues take center stage daily as she works to develop new and innovative supply-chain programs for individual customers as well as Avnet’s broader customer network. The partnerships she talked about in Phoenix form the starting point from which companies can develop plans to address growing issues such as online security, the need for better data analysis, and globalization for customers at all levels of the supply chain. In an interview with Global Purchasing earlier this year, Torrel elaborated on five supply-chain drivers she sees as having a significant impact on the electronics channel this year. The trends resonate with other companies in the supply chain, as well. Here is a look at Torrel’s five key issues:
- Supply Chain Security
“As digital technology, cloud storage, and mobile systems access continue to proliferate the supply chain, new cyber threats including malicious counterfeits and cyber espionage are on the rise. Supply-chain managers need to be aware of these emerging threats and develop proactive risk-management strategies to protect their physical and digital assets,” said Torrel.
These security risks go beyond the more “traditional” supply-chain risks companies have been developing strategies around for years—things like natural disasters and environmental issues. But they require the use of familiar tactics, such as strong supplier evaluation processes, Torrel explained.
“The first step is choosing your partners—who are going to be the trusted suppliers that you’re working with to manage your supply chain and bring in your products?” she said, adding that in today’s “connected” age, issues such as traceability figure prominently as well. “Supply-chain professionals need to be following good strategies for evaluating suppliers—who they are partnering with, traceability for components, and working with [leading companies] to develop better overall processes.”
Security in general is a growing concern in the Internet of Things (IoT) age. In an interview earlier this year, Christian DeFeo, supplier innovation manager for large electronic components distributor element 14, pointed to a potential backlash among consumers if safety and security issues aren’t properly addressed alongside the advent of smart, connected devices. As one example of the heightened focus on security, this year element14 conducted a survey of more than 3,500 people worldwide about IoT trends and challenges. Sixty-four percent of respondents said they are worried about the security of wearable electronic devices in particular, one of the fastest-growing IoT categories.
The need to address security concerns at the B2B level is similar, and Torrel emphasizes the need for close business partnerships.
“We need to be aware of these emerging threats that are coming on because of all this connectivity,” she said. “And again, it all starts with picking your partners carefully.”
- Merging of B2B and B2C Business Models
“Meeting consumers’ ever-increasing demand for speed, competitive pricing, and product personalization is setting the stage for a new trading model that [has been defined as] B2B2C (business-to-business-to-consumer),” said Torrel. “Strategies such as omni-channel and segmentation will be among the top drivers of a successful B2B2C supply chain.”
Buyers have different comfort levels with new technology, including mobile applications and online purchasing—a direct result of their experience in the consumer world. As a result, these consumers are carrying over a wide variety of wants and needs when it comes to business purchasing—and this means suppliers must be more flexible in how they fill those requests.
“We’re working at developing new technologies to improve the buyer experience. This includes focusing on strategies that enable our customers to choose how they interface with us,” Torrel explained. Self-service options and online design tools are important to some customers, while others prefer a more traditional B2B supply model, with field application support and hands-on customer service. “We’re very focused on the consumer experience—so that customers can [get the response they want] in dealing with us. Reaching out to customers and getting their perspective is helping us define and develop our Web strategy as well.”
- Data Analytics Hits Its Stride
“With the growing recognition that not all big data is useful and not all useful data is big, more supply-chain organizations will embrace the benefits of predictive analytics, starting with wringing more value out of the data and systems already in place,” Torrel noted.
Big data is an exciting topic and Torrel believes companies should pursue it, but she said it’s also important not to overlook the data you’ve been receiving for years. Strong supply-chain partners can help.
“Some of the services we provide include helping with supply-chain segmentation,” she explained, pointing to Avnet’s bank of knowledge regarding a customer’s history of parts usage. Such information can help customers develop strategies for classifying components and purchases, treating different parts differently, and make better purchasing decisions. “We’ve been using our data for years … we just haven’t used the term ‘big data.’”
The growing focus on data and analytics made industry headlines this spring when industrial equipment manufacturer Caterpillar announced it had formed an Analytics & Innovation division to better capitalize on this kind of information.
“We know that technology and information are the drivers in almost every industry, including ours; we have to continue pushing our company to be innovative—to imagine, create, and embrace the new and the different, and to be disruptive in our own way,” said Rob Charter, Caterpillar group president, in announcing the change. “A huge opportunity for competitive advantage lies in the analytics and innovation space, and we have a unique opportunity to connect data from the broadest product line that cuts across multiple industries. We can transform the mountains of incoming data—from a single machine or engine, an entire job site, the supply chain, a shipping location, and much more—into valuable information for our customers and suppliers more efficiently and effectively than anyone else.”
- Regionalization Will Enable Further Globalization
“Leading manufacturers will define their emerging market manufacturing footprints based on a more thorough total cost calculation, which will likely translate to more regionalized strategies to locate production closer to demand—wherever that demand may be,” Torrel said.
This shift will require suppliers to be more nimble in order to better serve customers’ changing production needs. Some may require multiple production locations around the world; others may manage with one central location that ships to partnering contract manufacturers in other regions.
“We always want to understand what customers are trying to achieve,” Torrel added. “We’re able to build those supply-chain models quickly and easily.”
Other suppliers are working to achieve similar goals, expanding their global coverage to support customers in a more focused way around the world. America II Electronics is a case in point. The independent distributor’s new strategy to add franchised distribution lines has coincided with efforts to expand in key places such as Europe, Asia, and Mexico. The company has put more people in these regions and in some cases moved to larger facilities to accommodate growth. The idea behind the change is to diversify its business model, with the ultimate goal to serve customers the way they want to be served anywhere in the world.
“For us, it’s one customer at a time,” company president Brian Ellison said in an interview with Global Purchasing earlier this year. “It’s understanding what that customer’s needs, wants, and pains are. We say, ‘Tell me what you need and let me adapt a model to you.’”
- Vertical Integration Makes a Comeback
“Fifty-two percent of manufacturing companies expect to be ‘highly vertically integrated’ in the next five years, according to the SCM World’s 2014 Chief Supply Chain Officer report. Those pursuing this model must be particularly vigilant in their sourcing and forecasting activities, as exposure to disruptions will rise while flexibility to respond to demand changes will decrease,” Torrel explained.
She adds that the move to become more vertically integrated—in which companies take back control of some of the pieces of their supply chain that they may have outsourced over the years—will not be a widespread trend, but limited to customers that are facing “unique challenges in their marketplace.” Torrel says she sees simultaneous demand to simplify the supply chain by using third parties. Either case requires the forming of closer supply-chain relationships—which, again, seem to be at the heart of any good strategy.
“I think there’s that tendency to want to take back some control, to have increased collaboration, and to have fewer but closer supply-chain relationships,” Torrel said.