At the end of last year, I kicked off a supply chain blog series by talking about the need to create global supply chains that can withstand severe headwinds. The ripple effect caused by constrained supplies, long lead times and continued spikes in component prices is having a lasting impact on traditional customer/supplier relationships.
In times of disruption, it’s easy to point fingers and place blame, even when things are beyond anyone’s control due to shifting economic and market conditions. This is, however, when cooperation and collaboration among global supply chain stakeholders can deliver the biggest benefits.
As a member of Jabil’s global procurement team, I am acutely aware of what’s happening across our supply base over the next 12 months. We’re also focused on identifying and rectifying any short-term market shifts that could affect our ability to meet supply requirements.
After all, our goal is to ensure there’s appropriate supply of commodity components to meet our customers’ product needs. The past two years have been especially challenging given the constraints in electronics component supply and the steady increase in component prices.
Fortunately, there appears to be some light at the end of the tunnel as we’re starting to see relief, especially in the areas of memory and other electronics components. Unfortunately, we are still contending with pockets of constrained supply in commodities such as multi-layer ceramic capacitors (MLCCs), resistors and discretes which continue to be a concern. Limited availability of legacy components also needs to be taken into consideration as suppliers typically reduce output of more mature components in keeping with their technology roadmaps.
Makers of several critical components are shifting their manufacturing resources from low-margin, legacy parts toward more advanced and in some cases, higher-priced devices. It’s critical to understand these strategies to alleviate problems caused by sourcing legacy parts.
That’s why Jabil takes a two-prong approach to managing supplier relationships. In addition to the commodity management team’s laser focus on the next 12 months, a supplier relationship management team works directly with top suppliers to develop a longer-range, multi-year view. This perspective incorporates forecasts for future supply, pricing outlook, investment strategies and technology roadmaps.
Together, they look farther out on the horizon to better understand and predict the effects of external and internal factors that can impact Jabil’s global supply chain comprising 27,000 suppliers and more than 700,000 parts. Not every supplier is equal, so each must be evaluated and prioritized from commercial and technology perspectives. Investing in expertise and digital solutions is the best way to manage a global supply chain of this size and scope.
Our teams rely heavily on digital supply chain orchestration and procurement solutions, which provide 360-degree, 24/7 views of suppliers and parts. They also deliver analytics and insights to streamline sourcing and price negotiations. Often, these insights point to changes in part or component lifecycles, which prompt customer conversations about mitigating risk in the future.
As soon as suppliers begin minimizing investments in mature components, we notify customers to begin the task of examining potential impact as well as the possible need to redesign a product using more leading-edge components. Sometimes these discussions can be difficult. After all, customers selling product that could potentially cost hundreds of thousands of dollars may be reluctant to change out low-value components that cost less than a dollar. In these instances, the conversation with customers must turn to risk mitigation rather than cost avoidance.
If those low-value components become obsolete or unavailable, they can bring manufacturing production lines to a screeching halt. To ensure that never happens, it’s imperative to follow all technology transitions closely and stay in close contact with the leading edge manufacturers at all times. Now, more than ever, seamless collaboration and open communication with suppliers is a critical strategy for buyers.
To lessen the impact of supply chain headwinds, companies need to blend big-picture thinking with detailed execution plans. In other words, you need to sweat the small stuff while striving to simplify complexity and deliver value.
What are you doing to reduce complexity in this new normal? Drop me a line in the comments section below and let me know. And, please join me next time as we look at how best to address increased labor costs and shortages.