Building the 'Ideal' Supply Chain

Building a supply chain begins with the product that is going to be supplied. This is usually a function of the identification of new requirements based upon either an early product definition document (PRD) or a release of an initial bill of materials for a product design underway.

After a newly introduced part or subassembly has been determined to be viable -- via research results based upon product selection and qualification criterion -- every part or assembly is assigned a unique identifier or in-house part number and subsequently entered into a part master database.

The research effort mentioned above involves the item's status concerning price, availability, and suitability for the anticipated worst-case operating conditions and regulatory compliance. Availability matched with pricing are the key determinates of the first stages of identifying the prime players in the supply chain. Obviously, the source of the item becomes a link, without which the supply chain cannot exist. Therefore, qualifying the source in terms of dependability, capability, and risk becomes an essential part of the earliest processes.

Using an established distribution network will reduce the risk somewhat, but always contact the original manufacturer for a list of qualified distributors authorized to distribute its products. This information can be quickly obtained on most manufacturers' websites. If a factory-qualified distributor is available, this name will be added to the anticipated supply chain for the item under consideration. Often times, there are multiple distributors, and Purchasing may have "favorites" that it uses on a regular basis. Most distributors will have inside and outside sales people assigned to particular companies or territories, so these individuals become part of the supply chain as well.

As indicated earlier, further up the supply chain and behind the distributors is the original manufacturer. Behind the manufacturer are the suppliers of the raw materials or processing operations that prepare the bulk material for the component or assembly level processing performed by the manufacturer of the item. It is this phase component, known as the supplier's supplier, where most of our control as end users also ends.

In most cases, the end-user cannot dictate to the manufacturer any sourcing or pre-processing of any product that is a standard, off-the-shelf component. But, where customization is involved, you as the end user may have a lot of influence further up the supply chain. When you have more control of the upstream mechanisms, you also have more assurance and earlier notification for product availability and pricing issues.

Our company had designed an application-specific integrated circuit, which we outsourced to a foundry overseas. We had to go through a US broker who could handle the intermediary communications efficiently, so our supply chain had to add this trading company's brokerage operations. However, we had control of the terms of the foundry's production schedule and raw materials as a guarantee that the wafers would be available for packaging. So apart from managing the production of the raw silicon ingots, we had virtual management of the entire supply chain for the wafer production and test. We did not have control of packaging house for the chips. They had to be sent from the foundry in Taiwan to Singapore for final package assembly and shipment to the US.

In order to track the progress of the wafer development, we required semi-daily reports of the progress of the wafers through the various processing milestones. As the engineering operations manager with experience in wafer development at Fairchild, I was able to map the various checkpoint steps on a traveler form that I was copied on regularly. As a result, our chips came in exactly when expected, and our schedules and shipments on our end products were always on time.

I realize that this is an exceptional case as today we don't have a lot of visibility into the raw material processing, but be aware that there may be possibilities you have not explored regarding having access further up the supply chain. I have described only one. Your products are unique, and so you have a unique supply chain link somewhere in your upstream processes. It can be an individual or a processing method, including logistics, that you may tap to acquire some control by which you can both reduce availability risks and even control the cost of the purchased item that will roll up to greater cost advantage on your end products.

Take the time to examine your supply chain and identify areas of control that you do not currently have. It will be worth the effort and time it takes to exercise those little grey cells that you use to build an ideal supply chain.