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Who’s at the Heart of the Supply Chain?

Sometimes all you've got to do to solve an intractable problem or resolve a riddle is simply change your methodology or just ask the question in a different way. One such problem with significant implications for everyone in the electronics industry centers on the issue of ownership or control of the supply chain.

The pertinent questions people have asked over decades include: Whose supply chain is it; who controls it; who wields the most power; and who has the ultimate responsibility for it when things go wrong or work smoothly?

You'll recognize some of the answers I've received to some of these questions. Many observers and experienced supply chain executives have told me they believe the OEM is ultimately responsible for the supply chain. Others say responsibility for the supply chain is shared by all the players, including OEMs, EMS providers, and component manufacturers. Few people have mentioned distributors as the ones ultimately responsible for the supply chain — in fact, I can't recall a single person having ever mentioned distributors.

Despite the multiple answers I've received, it's been generally agreed that these questions are important. The group that can lay claim to ownership or control of the supply chain can harvest the benefits of pricing leverage, receive favorable terms, and generally mold the system in its own favor. On the other hand, when nobody assumes responsibility for anything or when we dump it all on a single group, chaos typically results. Assigning responsibilities for the hitch-free running of the supply chain is important because what's at stake is so enormous.

The transactions involved for the entire industry run annually into hundreds of billions of dollars — starting at the conceptual design stage through components and vendor selection, contract manufacturing, production, parts delivery either through distribution or direct-to-producer, logistics, product delivery, and after-sales warranty fulfillment.

Web of connections
The touches along these interconnected services are so numerous that it's surprising the system works as well as it does. When everything works smoothly, we push the question of ownership of the supply chain back to the recesses of our collective minds. However, it pops up savagely when the system breaks down, as it has so often done. That's when we search for someone to blame, and often everyone spins out the responsibility to a different group. Even the idea of collective responsibility falls flat at times like this.

Are we in this dilemma because we've been asking the wrong questions? I believe so. Debating supply chain ownership or control of a trillion-dollar industry populated by tens of thousands of companies is a misguided exercise. The interests, investments, and opportunities in the supply chain are too many and too critical to the individual players to be assigned to a single group. No matter how selfless OEMs and EMS providers are, they cannot equitably protect the interests of all the other stakeholders and still deliver on their fiduciary responsibilities to shareholders.

The correct question we should be asking is: Who's at the heart of the electronics supply chain?

In other words, which of the industry participants is playing the critical role of traffic director, sending parts and services in the right direction and ensuring that collisions do not occur or that, when they do, the problem is quickly resolved?

To ask in a different way: Which group of players does the industry turn to in normal and abnormal times? Who is — in more ways than others — touching, representing, and advocating for the other players? And who has saddled themselves with the task of ensuring the supply chain operates smoothly?

Distributors. That's who.

Chain oil
Since the 1990s, mega distributors like Arrow and Avnet have moved to the heart of the supply chain and widely expanded their offerings. They aren't pulling strings so much as lubricating the system for all players — OEMs, EMS providers, component suppliers, logistics companies, systems integrators, software vendors, and even smaller distributors.

This wasn't an altruistic shift. They had to move beyond the traditional component distribution offerings. Without value-added services, distributors were doomed to become bit players. So they've evolved and extended services to cover most of the industry — in the case of Avnet to even offering supply chain management (SCM) and business process outsourcing (BPO) offerings to OEMs and value-added resellers.

The leading distributors aren't claiming control, ownership, or overall responsibility for the supply chain. They are just providing the services that keep the system operating smoothly. By stepping into its core and touching all players with services and offerings that keep the system efficient, distributors have rendered the question of control or ownership of the supply chain irrelevant.

4 comments on “Who’s at the Heart of the Supply Chain?

  1. bolaji ojo
    February 12, 2013

    Rich, That would be biting off more than Amazon could chew. UPS at its current market capitalization ($78 billion) may be more than Amazon could handle at its current cap ($118 billion.) Of course, strange things happen all the time but this is one that belongs in the realm of dreams. As you said, there's always the USPS but does any one single company ship anything near what Benjamin Franklin's creation serves?

  2. prabhakar_deosthali
    February 13, 2013

    While we are talking about who is controlling the supply chain or who is at the heart of supply chain, many changes are happening on the component manufacturing front.

    With the advent of 3D printing technology the whole component manufacturing and distribution business is likely to undergo a sea change. The OEMs may have to just get the component digital data to print the required quantity on their in house 3d printers as per their production requirements

    Even the product integrators will be able to 3D prinit their subassemblies in house and assemble their own products

    If this happens many a chains in the supply chain will vanish and a much leaner supply chain will remain – This is what I predict

  3. bolaji ojo
    February 13, 2013

    Prabhakar, You are right that 3D printing will revolutionize the supply chain and may be disruptive also. However, don't forget that OEMs don't really want to or need to be involved in manufacturing whether it is 3D printing enabled or not. You still have to handle and deal with raw materials and other inventories. The concept of minimal touch hasn't gone away and distributors facilitate this for their customers.

    It's unlikely we can cut distributors out of the business. They are and have proven they are adaptable and willing to change to better serve their clients. In fact, they've grown even as outsourcing increased and their ranks have reduced dramatically because fewer companies could offer the extended services OEMs want.

    We can expect significant changes in the supply chain but we should also anticipate seeing distributors remaining central to the system because they touch all players.

  4. bolaji ojo
    February 13, 2013

    Rich, One of the more likely advantages from 3D printing that hasn't been touched upon is the opportunity to reduce the incidence of inventory obsolescence. I think you can't overemphasize this and it may help reduce the existence of fake products in the supply chain. It probably won't eliminate counterfeiting but parts failure may be reduced.

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