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The Inside View to the Supply Chain’s Second-Tier

Visibility. It's what all companies managing a complex supply chain want from their suppliers.

The problem is that most companies only have a limited view of what they want, and the limit seems to be drawn at their first-tier suppliers.

Logic follows, then, if companies can't see further back into what their supplier's suppliers are doing, two, three, or four tiers down, can they really ever understand where all their supply chain gaps are? Will they ever truly understand their total risk? The short answer is no.

Despite all the years of talking about increasing visibility throughout the supply chain, very few electronics companies have been able to create and maintain a system or internal processes that reliably tracks activities and disruptions across many tiers of suppliers. The only ones who have had any sort of success at this are Fortune 100 companies that have deep financial pockets and a visionary CEO who understands how mitigating supply chain risk early-on translates to significant bottom line savings.

But as companies have had to recently calculate damages caused by tsunamis, floods, hurricanes, and other natural disasters and now face greater pressure to monitor and report counterfeit parts and conflict minerals, there's a renewed interest in the visibility conversation. Companies, either under regulatory obligation or because of steep financial hits they had to report to shareholders, are looking to closer keep tabs on what's happening beyond their first-tier supplier dashboard.

However, they may be surprised by what they find when they start peeling back the layers.

For instance, much of today's high-tech and automotive supply chains are dependent on a small group of sub-tier suppliers and a handful of geographic hotspots — things many companies don't even realize at first glimpse, according to a study done by Resilinc Corp., a Santa Clara, Calif., solutions provider that helps clients plan for, monitor, and protect against global, multi-tier supply chain disruptions.

As an example, Resilinc found that “a vast majority of suppliers” are dependent on sites that are owned by just four suppliers: Taiwan Semiconductor (TSMC), Amkor Technology, ASE, and United Microelectronics (UMC). The rub is that while foundries services have become more common throughout the high-tech sector and these names are well-known in the electronics industry, many OEMs, EMS companies, and other related sourcing companies may not fully understand how much of their BOMs are routed through these sub-tier suppliers or what their exposure to potential risk is, Resilinc said.

Additionally, Resilinc found that more than 50 percent of all sites analyzed are located in four countries: Taiwan, China, the US, and Japan. This high degree of supplier factory aggregation in a small subset of regions “creates global supply chain hotspots, and many of these hotspots for high-tech and automotive suppliers are in areas known for susceptibility to natural disasters,” according to the study. The study results were based on a detailed analysis of a subset of global supply chain mapping data the company collected over the last year from the supply chains of more than 600 large and medium-sized suppliers across more than 2,500 supplier sites spread over more than 50 countries.

“There's growing recognition that companies will be hit by a major supply disruption at some point in time. The big questions executives are asking themselves are 'Do we know where our risk lies and do we know how to mitigate it?' ” Jon Bovit, Resilinc's chief marketing officer told EBN, adding that there's an increasing realization among CEOs and board members that they are unable to quantify their risk. “In many cases, how well they can manage and mitigate their supply chain disruption risk comes down to how much visibility they have into their supply chain.”

Many organizations realize that there is a visiblity issue when you get past the first tier. “Ask companies how much visibility they have into their first-tier suppliers, and most would say they have a pretty good view into that part of their supply chain,” he added. “Ask them how much visibility they have two, three, or four tiers out, and you'll see that visibility drops like a stone. Hardly anyone has visibility that deep into their supply chains.”

To increase visibility, Resilinc has three recommendations for companies:

  1. Map their global supply chain to understand dependencies to the part level
  2. Quantify and assess high-risk areas in their supply chain
  3. Monitor for ongoing global disruption events

“We see some companies doing these things, but not many of them are doing it in an integrated way,” Bovit said. “If it's not being done in an integrated way and there's a supply chain disruption at one of the sub-tier suppliers, it may take a company six months to hear about the problem or see it work through the supply chain.”

Let us know your experiences of raising visibility into the lower tiers of the supply chain in the comments section below.

9 comments on “The Inside View to the Supply Chain’s Second-Tier

  1. Lavender
    September 4, 2013

    Since supply chain is a complex system, including product source, logistic, delivery, quality control and other aspects; for a company, especially small ones, fully understanding the first-tier supply chain costs much whether in time, money, human resources, not to mention the second-, third-, fourth-tier suppliers. 

    Inside view to the supply chain really help reduct supply chain risk, but the cost problem is still a big obstacle. 

  2. Hailey Lynne McKeefry
    September 4, 2013

    @Jennifer, this is a suprising bit of news: “As an example, Resilinc found that “a vast majority of suppliers” are dependent on sites that are owned by just four suppliers: Taiwan Semiconductor (TSMC), Amkor Technology, ASE, and United Microelectronics (UMC).”

    Common sense dictates that a big catastrophe affecting one of these companies could be even more troublesome than you might imagine when  you think of just how many OEMs it might impact. It makes me wonder if there are other similar examples in other parts of the supply chain.

  3. Jennifer Baljko
    September 6, 2013

    @Hailey – I was surprised to see that as well–that so much in the semiconductor industry is passing through a handful of companies. But when you think about it, it was obvious that something like this could come to pass. Just think about how much emphasis was placed on outsourcing during the last 10-15 years. The plus side is that these companies have plants in different places, so if something major happens in one location, I assume work and orders will be routed to their other facilities. However, whether or not those other plants will have the capacity available to pick up the work is another important question folks need to consider.

     

  4. FLYINGSCOT
    September 6, 2013

    In my expreience most comapnies do not egt too sophisticated in the analysis of risk wrt suppliers.  Instead they say for critical components they need to have 2 disparate sources geogrpahically and they leave it at that.  There is probably a better way to do this but that is what I have seen.

  5. jbond
    September 9, 2013

    @ Jennifer. Unfortunately many of the semiconductor companies do have multiple locations but each location focuses on different products. Which means they can't produce the same product at the other locations.

    We have a local semiconductor company and they have locations in 3 other states and because all of their locations they work together but make different products they can't produce the same thing at the other locations and due to over producing at our local locations they have recently had several mass layoffs at 2 locations but in another state they are currently hiring many new employees. An example of the right hand not speaking to the left hand.

     

  6. Hailey Lynne McKeefry
    September 10, 2013

    @Jennifer, remembering this discussion, i noted at an AMD press confernce yesterday that they say they also use two foundries: DSMC and GlobalFoundry.

     

    Let's all sing together “It's a small world after all, it's a small world after all, it's a small, small world…” 🙂

  7. Hailey Lynne McKeefry
    September 10, 2013

    @jbond, This left hand/write hand conundrum probably costs a lot. I bet it would be difficult to figure out–and sobering to understand.

  8. jbond
    September 24, 2013

    @Hailey. I agree with you.

  9. jesse_securecomponents
    November 13, 2013

    I am coming at this from the perspective of an independent distributor. In the grand scheme of things we are fairly far down the supply chain. However, as the first distributor certified to the AS6081 counterfeit avoidance standard we are committed to transparency.

    What do we mean when we talk transparency? Well, per the terms of the AS6081 standard we are obligated to disclose our source of supply – we require an NDA be in place to protect our IP. This transparency helps to foster a true partnership between us (Secure Components) and our customer. It is all about shared responsibility and risk mitigation.

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