Understanding Risks in the Supply Chain

31 October 2013

Supply chains are backbones of the electronics ecosystem, yet they are becoming increasingly fragile and riddled with potential risks. Their complexity and critical role have businesses and governments alike increasingly concerned about managing and even preventing major disruptions.

[To address supply chain risks and share best practices, Electronics360 is conducting a global supply chain survey. Click here to participate or learn more.]

The pure speed at which we must operate alongside the on-going globalization of the industry requires the rapid build up and break down of supply networks that expose all those who participate. The pressure requires a more focused strategy around building better supply chain resiliency through more agile, transparent and diversified systems.

Over the past few years, we have witnessed significant global events that have heightened the awareness of how detrimental risk can be to shareholder value—wiping away valuations that have taken years to build as a result of a single disruption.

Even the C-suite executives are starting to take notice and demanding that supply chain risk management become a core competency and a paramount focus for their organizations—most of which currently don't have a strategy much beyond some level of "disaster recovery."

Those who have been impacted by hurricanes, volcanic disruptions, tsunamis and severe political unrest surely have taken notice and have the unfortunate luxury to know first-hand the lessons learned and key measures necessary to better prepare for such geo-political risks. Such "systemic risks" are described by the World Economic Forum (WEF) as those that have a global geographic scope, cross-industry relevance, uncertainty as to how and when they will occur but high levels of economic and/or social impact requiring multi-stakeholder response. According to the WEF, these risks are magnified by the way supply chain systems are configured but cannot be mitigated by individual actors.

But what about the risks that reside within and across the electronics supply chain that have even higher probability of occurrence and potentially equal or greater impacts—and that we can actually control as single stakeholders? These are the risks that undoubtedly deserve our immediate attention and should top our mitigation considerations.

Preventing risks associated with supplier viability, intellectual property loss, lead-time increases, outsourcing and off-shoring efforts, entrance to new markets, new product introductions and even demand volatility is crucially important.

But the question which remains on the minds of executives today is still: "With so many varied risks can we actually afford to de-risk our entire supply chain?"

In an effort to answer this question, there is a return to the concept of segmentation. Treating the supply chain as if it were some homogenous entity requiring equal emphasis and goals for performance is simply naïve.

The supply chain executive today must determine requirements on a per supply chain basis. Nearly all organizations have multiple supply chains and each of these supply chains competes on a different supply chain attribute.

Supply chain segmentation requires organizations to determine first how many supply chains they are operating and which of the attributes is important to which supply chain, and then build the operational network that supports the attribute of choice.

For example, one supply chain may focus on competing on their responsiveness, the speed of the supply chain therefore attempting to reduce the overall order fulfillment cycle time. Another supply chain within the same organization may compete on cost driving towards improved "working capital" through more rapid inventory turns. Leading companies with a higher level of supply chain maturity will develop, maintain and adjust their overall supply chain structure in alignment with their segmentation strategy, which supports their overall business objective.

Any effort to de-risk our supply chain and focus on the mitigation efforts for the highly-probable/ high-impact risks requires us to first segment our supply chains and understand which attribute we are trying to achieve. In doing so, we can then and only then identify specific risks per supply chain that might cause us to miss our desired business. It's the beginning of any mitigation strategy.

For a further insight on risk and other supply chain best practices, please take a few minutes and complete the Electronics360 Global Supply Chain Survey. The results will be shared back with all those who participate so provide your personal insights today.

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