In today’s volatile geopolitical climate, supply chain shocks can come from many different angles. Whether it is regional conflicts, natural disasters, trade policies, technology advances, or market movements, electronics supply chains have rarely been so exposed.
It therefore makes a lot of sense to plan for such events and put contingencies in place for various eventualities. Of course, much of this comes with a trade-off, whether that is in cost or people resources.
Recent years have seen supply chain shocks arrive from multiple directions. The COVID-19 pandemic triggered simultaneous factory shutdowns across Asia and a surge in demand for electronics, compounded by global shipping delays. 2021 brought further disruption through extreme weather events – the Texas cold snap, Taiwan’s drought – plus the Renesas factory fire and Suez Canal blockage. From 2022, the Ukraine war constrained critical materials including neon gas and palladium, while US/China trade restrictions added further pressure. Most recently, AI-driven demand has strained memory and advanced chip supply, rare earth and helium bottlenecks have emerged, and the Dutch government’s intervention at Nexperia marked an unprecedented instance of state action in the sector.
All of the above and more have caused major issues for supply chain professionals over the last 5-6 years, with the lasting effects driving innovations across various supply chains to avoid future supply chain shocks. Some of these are:
- Supply chain visibility (end-to-end). Getting visibility on your supply chain is key to understanding where the risks and the opportunities can come from. This can allow you to perform analytics across your supply chain, track inventory, lead times, and have the ability to map suppliers further down your supply chain (e.g., tier 2 and tier 3 suppliers)
- Geographic risk diversification. The aforementioned disruptions have emanated from, or are confined to, certain regions geographically. It therefore makes sense for supply chain professionals to take steps to mitigate this by securing backup supply routes through or from other regions
- Supplier diversification. Prior to these supply chain shocks, there was a higher incidence of single supplier reliance. When supply chains are impacted and you have complete reliance on a single supplier, your production will grind to a halt. Many suppliers are now bringing more online suppliers as contingencies against supply chain shocks and spreading their demand across them. This of course, comes with some penalties due to lower volumes being ordered, but it does offset significant risk in uncertain times
- Design flexibility and component standardisation. In many cases, in order to get the flexibility to bring additional suppliers online, you may need to adopt a more flexible approach to design and the use of components. You would then have more options available in the event of supply chain disruption
- Strategic inventory management. While models such as JIT (just in time) can be very beneficial in stable markets, it is not the case when there is a lot of volatility. Many supply chain professionals have adopted a hybrid approach, balancing timely deliveries with having strategic stock held either on-site or close by in case of a supply chain disruption. This increases costs but insulates you against disruptions at least for a longer period than previously
- Scenario planning and demand modelling, such as modelling the geopolitical crises or climate disruptions. This is key to predicting what the impact of supply chain disruptions can be, and how to develop contingencies against them
- Change from transactional relationships to partnerships. Suppliers tend to help you more in times of difficulty/crisis when in a partnership together. Sharing forecasts and planning together generates more trust and shared objectives compared to a more transactional relationship
Summary
There are many contingencies which can be implemented against supply chain shocks. Most of these come with a cost, whether that cost takes the form of a direct cost or an opportunity cost. The key is to balance this cost against the potential risk and choose the right strategy for you.
This article originally appeared in the July/August issue of Procurement Pro
