Organizations worldwide may be dealing with an unprecedented situation right now, but risks like supply chain disruption can be lurking around the next corner in any business environment. From component shortages to conflict minerals to supplier insolvency, the issues that electronics buyers deal with on a daily basis predate—and will transcend—global problems like COVID-19.
Building Resilient Supply Chains
Whether economies are humming along, or recessions are waiting in the wings, avoiding supply chain disruption and effectively managing risk are top-of-mind issues for electronics OEMs and CMs. Charged with sourcing and acquiring goods and services that their companies need to be able to fulfill obligations to their own customers, procurement can play an important role in recognizing and mitigating supply chain risk.
Defined as the probability that an undesirable event will occur and interfere with the flow of goods from its source and to its end user, supply chain risk factors in problems like natural disasters, geopolitical events, raw material shortages, transportation mishaps, or even a workers’ strike. When they’re not managed proactively (i.e., a disaster recovery plan in case of a factory fire, or an alternate source of supply during a geopolitical event), these issues can lead to supply chain disruptions.
For instance, due to health risks and personnel displacement associated with COVID-19, EY says manufacturers are struggling to staff for normal operating capacity as labor challenges arise following a period of temporary factory shutdowns. “Many enterprises have disruptions in their logistic hubs and delivery routes due to restricted locations and closures,” EY explains in a recent advisory. “These impacts have been felt by companies, from small third-tier suppliers to billion-dollar conglomerates, with the likelihood many will not recover for years to come.”
5 Steps to Take Now
The good news is that there are ways for electronics procurement professionals to identify, address, and even avoid supply chain disruption. Using these five risk management strategies, OEMs and CMs can start taking steps now to not only minimize current disruptions, but also ward off future problems.
- Adopt a proactive stance. Too many companies still follow a more reactive approach in responding to supply chain disruptions, according to McKinsey. That said, almost all of the companies that it recently surveyed diversify their operations and implement multi-sourcing strategies wherever feasible and economically justifiable. “Working closely together with their suppliers and performing regular supplier audits is part of their general business practice,” McKinsey says. “On an ongoing basis, they monitor the most relevant risks—such as regulatory changes or changing customer demand.”
- Be prepared. The official motto of the Girl Scouts, “be prepared” is the singular best step that any procurement professional can take in today’s uncertain business environment. Most companies ignore the need to stay proactive, and are especially “reactive” when business is brisk, as it has been for the last 10 years or so. “When hit by sudden supply-chain disruptions, they build temporary task forces to manage the issue on an ad hoc basis,” McKinsey states. “In some cases, precious time is lost due to insufficient preparedness.”
- Establish supply chain risk management teams. More advanced companies have permanent supply chain risk management teams and processes in place. “The information cascade between the supply-chain risk-management team and other functions such as marketing, IT, and legal is well-established, with clearly defined interfaces,” says McKinsey, adding that in the case of disruptions, these teams exchange information on the fly and react quickly.
- Leverage data to your advantage. Generated every minute in operations and global supply chain management—be it transactions, product testing data, logistics, pricing agreements, material cost, or email communications between teams—data is literally the new oil. It’s also a great tool for every electronics buyer’s supply chain risk toolbox. Having a supplier’s financial data and insights into its business performance, for instance, can help you stay out in front of issues like insolvencies, bankruptcies, and supply disruptions. “Examining the kind of data that can be used to make better future business decisions is essential,” CoFounder Magazine points out. “This helps companies develop the appropriate strategies for capturing, storing, and analyzing data.”
- Factor in supplier security. Supply chain security breaches occur frequently, with many of them due to vendors’ lack of intellectual property security measures. When these suppliers overlook security issues and potential breach points, it can result in the disclosure of sensitive customer and supply chain data. “This can ultimately lead to business operations being slowed down or in the worst-case scenario, harmed beyond repair,” CoFounder notes, adding that security compromises can be kept to a minimum by employing secure supply chain data, measurement, and reporting architecture, in addition to a solid understanding of collection points and repositories for any sensitive data.
Murphy’s Law Will Strike Again
In some cases, simply acknowledging the fact that supply chain disruptions can and will occur can help electronics buyers successfully identify and ward off potential problems.
“It might sound paradoxical, but the first step to avoiding disruptions is to know (and act on the fact) that it’s impossible to avoid all disruptions,” Brian Hoey writes in 5 Tips for Avoiding Supply Chain Disruptions. “Once you believe this, you can start to develop a more proactive mindset, seeking out areas of improvement and potential process changes to help make your operations more resilient when, not if, something goes wrong.”
