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.

15 comments on “Building the ‘Ideal’ Supply Chain

  1. ahdand
    December 24, 2012

    I feel SCM has a good market and this proves it. Hope the requirement of SCM will rise and hope many more enterprise level applications will be integrated along with this.

  2. Ashu001
    December 27, 2012


    Could you please elaborate and explain which Tools here are Key and how will they be integrated effectively with the Entire Supply Chain?

    I am really interested to learn and understand how you view this critical going ahead in 2013 and beyond.

    Many Thanks!


  3. itguyphil
    December 27, 2012

    Which applications are big now?

  4. Ashu001
    December 28, 2012


    When you raised these issues HERE

    ” 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.

    The Thought that came to my mind more than most was this-If you had to look at this issue statistically;What Percentage of Products do you see Customization in today?

    30%? Or More?

    Many Thanks for a Great Blog!


  5. bolaji ojo
    December 28, 2012

    Douglas, I know this is going to be controversial but help me understand from your perspective what you believe are the elements of “ideal supply chain.” Ideals have always been open to varied definitions and very controversial. What is ideal to one organization may be the basic foundation to another or an impossible goal to a different one. How should we approach this quandary?

  6. dalexander
    December 28, 2012

    @Bolaji, I think everyone involved along the chain would answer in a somewhat identical manner as to what would be the ideal supply chain for them. As I see it, each person or department, to some extent, recieves goods, services, or materials, does something with them, and if not at the end of the chain, passes the product in whatever form along. So, I believe whatever minimal process, procedure, person, or capability that is required to facilitate the efficient movement up and down the chain is at the heart of the ideal. For me, that translates into maximum control with minimum effort and time. Looking at the tools for this maximization, they would have to be cost effective and easily accessible for authorized parties. Higher levels of integration resulting from fewer steps or processes fall under the category of time and efficiency. As to the variances from-comapny-to-company, the tools and efficiencies will be deterimined by the fundamental requirements, people skills, and the budgets of each company. Overall, I believe that each company, per project, develop a material plan for each new product introduction that encomapsses all known and prospective sources, contracts, negotiations, lead-times, database updates, quality assurance practices including new supplier surveys and inspection criteria updates. Inventory handling procedures should also be defined so that every department anticipated to be “touching” the product will not be surprised or without sufficient notice to make the necessary modifcations to their internal and external processes. I have seen product held up waitng for Marketing brochures or installation kit or instructions being delayed at the printing house. In the Material plan, it is important to build in the required lead-time to bring all things together that will make the introductory launch smooth and effective. Bolaji, I know I am speaking in generalities here, but if each link along the chain customized these processes to their products and scale of business, the supply chain would be closer to ideal, notwithstanding risks and Act of God. The essence of the flow is that your output, is my input, which in turn becomes my output to someone elses input. I wrote earlier about I/O (Input Output Diagrams) and how if they are inner and interlinked between departments internal to a company that process within a single firm can be harmonized via strong internal links in the chain. If each entity was party to the I/Os and proceses of every other entity involved in a more global supply chain operation, then more control could be realized, monitored, evaluated, modified, and perfected. Simply stated, if I knew your risk factors, I could factor them into mine and make the necessary contingency plans to help mitigate those things I cannot control because you can't control them. A close, integrous relationship between and among supply chain partners is essential to the overall integrity of the entire chain. When I call Digi-Key, I get a different person each time but I know that through a long time relationship with Digi-Key that they have a very good track record for efficient and on-time operations. So I don't have to form a bond with them but the other suppliers that I may not be familiar with, I better concentrate on learning their business I/Os so that my company doesn't get broken because of an unanticipated break in the supply chain that I should have already anticipated as a liklihood or high risk candidate. Getting the right information and knowing what to do with that information is key to moving towards the ideal. Flexibility and rapid reaction are reserved for the non-ideal. Along with planning for the ideal, planning should be in place for the non-ideal as well. Only then can you say you have done what you could to properly manage your supply chain. The every day operations will vary in nature, but written and adhered to procedures help normalize the results and minimize the surprises…moving you towards the ideal.

  7. dalexander
    December 28, 2012

    @tech4people, As you know, customization is highly dependent upon the nature of the product. It is correct to say that Apple's iPhone docking connector, at introduction, was a custom connector that required custom tooling and parts to produce. Then when something becomes a standard in an industry and patent restrictions are lifted, the product can move to a non-custom status given the introduction of multiple manufacturers making the same product. Having said that, there is always a certain amount of customization that differentiates similar function products so that more than one manufacturer can compete on an otherwise level playing field. Bose makes a docking speaker for mobile devices, but so does Sony, Samsung, and a host of others. They look different. They sound different. They have different features, artwork, and I/O. These are the things that generate the custom requirements for materials, laabor, and design. For me to put a percentage upon these would require my viewing every bill of material. But, if you consider the uniqueness differentiating one similar product from another, you will be able to recognize the custom factors in the design that probably involved original tooling, artwork, connectors, and circuits. Application Specific Integrated Circuits (ASIC) and masked Field Programmable Gate Arrays (FPGA) are prime candidates for claiming custom status. 10% may be not too far off the mark for circuit customization based upon component count, but in most cases when mechanical concerns are involved for enclosures and front panels, you're closer to 100%. It is these unique components that can bite you the hardest if they are not managed properly as far as the supply chain is concerned. Unless the company has licensed the tooling to multiple suppliers, the custom part supplier is usually a sole source and constitutes a higher level of risk management as well. Generally speaking, if you can achieve the same product results with legacy components and multiple material and process sources, the smoother your supply chain will be. But then innovation and cool new tech would be severly limited. It is a trade off for sure.

  8. hash.era
    December 30, 2012

    Douglas : This is simply great. Thank you for explaining things in detail. I think you have made a great point here.

  9. hash.era
    December 30, 2012

    IMO you cannot catergorize the size of the applications. True there may be several in-built integrations needed and involved but that wont be a problem as such. I think when it comes with data only the size will have to be taken into consideration.

  10. itguyphil
    December 31, 2012

    I wasn't talking size. I was referring to popularity.

  11. hash.era
    January 30, 2013

    Ok so I dont see any difference in it charles.

  12. itguyphil
    January 30, 2013

    I wasn't talking differences but trying to figure out market leaders, big brands, etc.

  13. ahdand
    February 15, 2013

    Well technically you can integrate any application to this if it has a direct link with the supply. I dont think there are tools specifically to be named for this. It should come along with the requirements of yours.

  14. Ashu001
    February 16, 2013


    Somebody gotta do the Moulding first right?

    Its not so easy to make these changes (for Different Companies) very quickly.


  15. ahdand
    February 22, 2013

    True its not easy and someone has the start it but who is going to do that ? It gets delayed since most of us wait till someone else starts

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