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Disruptions, Imbalances & Insane Supply Chains

Albert Einstein once said, “Insanity is doing the same thing over and over again and expecting different results.” I can't help but think of this quote whenever there is some kind of disruption in the electronics supply chain that leaves many OEMs and EMS providers scrambling for parts to keep their production lines running. It seems that is the only time they recognize the importance of supply chain continuity.

While there is an increasing appreciation of the supply chain as a potential competitive differentiator, there is still a tendency among many companies to build their supply chains around one thing: efficiency, in the form of the lowest price. This approach is adequate when it is a buyer's market, but when the tide turns, these companies discover that they have no capabilities for conscious tradeoffs between efficiency, agility, or responsiveness until it is too late.

Unfortunately, despite what I am sure are the best of intentions, many don't follow through on their pledge to be “better prepared next time.” After the crisis passes, they become complacent and don't do the analysis required to define their supply chain goals and segment their supply chains based on identified threats. Before long, they are right back where they started, trading security for a few small cost savings per part, until the next emergency arises — same story, different disaster.

It's a vicious and self-defeating cycle, but it doesn't have to be that way. A supply chain built for continuity is not only safer and more cost effective, but can provide a significant competitive edge. There will always be those unforeseeable events that will throw the global supply chain out of balance. But if you have a supply chain built for competitive advantage, and you have collaborative relationships with your supplier and distribution partners, you can diminish the downside impact while boosting your position in the market. Bottom line: Do you want to be scrambling for parts or reaping the rewards of a strategic and sustainable supply chain model?

At {complink 577|Avnet Inc.}, we recommend customers perform regular assessments of their supply chain strategy and risk. This entails the following:

  • Determine supply chain goals based on an outside-in customer view
  • Determine the tradeoffs between efficiency, agility, and responsiveness
  • Identify the primary sources of risk in your supply chain
  • Assess the likelihood of occurrence
  • Estimate the financial impact
  • Prioritize your supply chain based on the likelihood and impact
  • Develop a strategy to mitigate or reduce the likelihood of disruptions
  • Review supply chain strategy periodically to assure continuous improvement.

Remember, mitigating supply chain risk isn't just about holding extra inventory. There are many strategies that can be employed to bolster the sustainability of your supply chain, including buffer capacity, dual- and multi-sourcing, delayed differentiation, component commonality, and process standardization.

So, what do you think? Will the recent surge in concern for supply chain continuity be another flash in the pan, or will customers finally break the cycle and put supply chain continuity at the top of their to-do lists?

13 comments on “Disruptions, Imbalances & Insane Supply Chains

  1. Nemos
    June 21, 2011

    Very nice Article. We can build a huge building but the future of the building during the time pass depending from how stable is the base. And in particular, a sustainable supply chain model is a solid base regardless if the unforeseeable events occur.

  2. Taimoor Zubar
    June 21, 2011

    Great post, Gerry. I agree that companies need to constantly invest to carry out research on their supply chain to make it more valuable and achieve competitive edge through it. How important do you think is the role of technology in improving upon the agility and responsiveness of the supply chain and helping in achieving supply chain goals?

  3. eemom
    June 21, 2011

    Unfortunately what you describe is just human nature.  How many people make promises to themselves and others when there is a crisis but when it passes, all go back to their original natural way of living.  That is the same with the supply chain, why companies may have the best intentions to change their way and possibly even start to implement better practices in crisis situations, eventually, human nature (lower cost – make profit) will take over.  Perhaps the more successful companies who have the cash to spend will be those who emerge with a better supply chain strategy moving forward.  It is what will help them differentiate themselves by making product available whenever needed without being subject to market, political, or natural disaster issues.

  4. DataCrunch
    June 21, 2011

    Technology is a key component to any contingency and supply chain continuity planning, especially as it relates to all the different systems involved in the entire supply chain process.  The way companies apply technology within their supply chain can be the differentiator amongst the competitive playing field.

  5. Anand
    June 21, 2011

    There are many strategies that can be employed to bolster the sustainability of your supply chain, including buffer capacity, dual- and multi-sourcing, delayed differentiation, component commonality, and process standardization.

    Gerry,

     Dual- and multi sourcing is great stratergy. After the tragic events that happened in Japan, do you think companies are adopting this strtergy ? 

  6. mario8a
    June 22, 2011

    Hello

    I agree this is a great article, and I can think of insane Supply Chain in two main segments; Sustaining and NPD.

    Both are definitely different processes to procure materials, however when NPD is using resources from legacy products and “issues hit the fan” that's when components assigned for daily manufacturing process will have to be re-direct to launch new products using resources and materials designated for products already released for production.

    Basically even when the company assess the likehood of occurrence of having an financial impact all the plans and the strategy is put aside to keep the business running and customers as happy as possible.

  7. Gerry Fay
    June 22, 2011

    Anandvy,

    I do see evidence of companies taking dual and multi sourcing more seriously but time will tell if it sticks.

    Regards,
    Gerry

  8. Gerry Fay
    June 22, 2011

    Dave,

    Thanks for your post.

    I agree with you to a point. I believe companies with lower tech capabilities but high levels of communication and collaboration with their supply chain partners trumps hi tech but limited communication and collaboration every time.

    The key is to do both well.

    Regards,
    Gerry

  9. Daniel
    June 22, 2011

    “Insanity is doing the same thing over and over again and expecting different results.” That true with most of the industries and marketing situations. Especially when it comes to marketing and business world, manufactures and supply chain companies are doing the same sort of business using different strategy for capturing the business. In mathematics it’s named as permutation and combination. Trying  different combination at different instants.

  10. hwong
    June 22, 2011

    Companies spend ~100 million dollars range to implement supply chain ERP systems. In my honest opinion, companies can achieve the same benefit by not implementing those “fancy” software but have a better collaboration efforts within the cross function and with the vendors/ customers. I know it's not easy but I just feel that SAP or Oracle have too many restrictions.  They basically forcing companies to do things a certain way.

  11. Mr. Roques
    June 22, 2011

    I've had the misfortune to visit a few production lines and find “temporary” solutions that have been there for months (years?). When something goes wrong, the inmediate reaction is to get it fixed – ASAP! … after that, there's no finding out what when wrong or if the new solution is actually the best solution.

  12. danmcmillen
    June 24, 2011

    Well said, and many of the comments reflect the true overall problem.  It is what I call the “Diet” approach to life…a crisis…a reaction…a temporary fix…that quickly fades away, or worse becomes a permanent bandaid.  In every area of life this seems to take its course for individuals, companies (big or small) and governments…human nature.

    The Supply Chain requires discipline, vigilance and relationship to be effective. Reactions to events inhibits disciplines that need to be set and proactively implemented.  Technology can lull you to sleep limiting vigilance.  The price issue throws out relationship, which is what saves you in an effective supply chain.

    Wherever you see excellence you will at least see these virtues and when they are developed in an individual, company and government everyone prospers.  My company World Micro prospers in this environment bringing solutions to many of the problems our customers struggle with everyday.  Our goal is to work with them to develop a more managed pro-active approach to their supply chain in the areas we specialize in versus constantly getting caught in the reactive nature.  No more Diet Programs.

  13. stochastic excursion
    June 24, 2011

    Also the recent article applies about thinking in terms of creating an ecosystem when developing corporate partnerships.  Efficiency is a good example as a trade-off in managing a supply chain.  I recall hearing that fuel injection systems are all made with components sourced from two factories in Japan.  When the earthquake hit, these factories were shut down and for a while there was no way to make a fuel injection system.  Some cars still have carburated engines and, though these engines are less efficient, at least their supply chain was uninterrupted.  So, having an eye on continuity and the resources to maintain it is good practice.

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