The 3 Pillars of Supply Chain Resilience

Focus on building the 3 pillars of resilience

If we’ve learnt anything about supply chains in recent years it’s that the unexpected can happen and will happen. And without knowing exactly what’s coming your way, all you can do is be ready.

So how can you make your supply chain more resilient to the next inevitable disruptions?

A global pandemic, a factory fire in Japan and the Suez Canal fiasco are just some of the events that have thrown global supply chains into disarray. 

When COVID first hit, businesses reacted, perhaps even over-reacted – old orders were cancelled, then new orders were placed shortly after. But a shortage of components saw production lines forced to a halt.

Then came the Suez Canal and a whole host of weather related issues. Factories caught fire, earthquakes rumbled. As much as we’re reluctant to use this phrase, in the last couple of years we've seen a near-perfect storm of factors hit supply chains where it hurts. 

However, recent events alone were not to blame.

Supply chain disruption has been a long time coming. 

Many companies realised there was an issue at the end of 2020, after the major lockdowns in the spring and summer of that year. They weren’t getting the confirmations for their orders like they had previously. Lead times were increasing. And the scope of the challenge came into view. 

And complexity and nuance aside for a moment, it all boils down to the same thing, always.

Supply and demand

If we take the automotive industry as an example, recent years have seen a massive increase in the number of electronic components in cars. If you add in factors like the 5g rollout and the electrification of vehicles, both of which create a need for more infrastructure and data centres - demand for components has gone through the roof.

On the supply side of things, there is a finite amount of capacity available in a foundry that creates the silicon wafer used to produce semiconductors. And it takes years and costs billions to create more.

For years, supply chains were kept incredibly lean to maximise efficiency and minimise costs. Approaches like ‘just-in-time’ production gave some firms a competitive edge and increased profit margin.

Until now.

What worked in the past isn’t fit for the future

In recent years, for a lot of manufacturers, responsibility for sourcing parts to meet demand was pushed down the line.

Say, for example, an OEM was negotiating an annual contract with their tier 1 supplier for infotainment systems that go in the cars they’re building. Their priorities were ‘how many do I need right now and how much will they cost?’ They weren’t thinking about the supply of individual components that went into those systems. That responsibility was passed down the chain.

And this all works fine, until it doesn’t.

When there’s a shortage, at each step along the line, each supplier has to consider how much they’re going to allocate to each customer. So you don’t really know how shortages down the line will impact you. How do you guarantee you get what you need? Many didn’t.

In the past, shortages like this tended to be short term and resolvable. For a long time ‘just-in-time' worked. And because it worked, a short-term mindset prevailed. 

But times have changed.

With the world heading toward even greater reliance on electronic components, as we’ve seen with semiconductors, this demand creates longer lead times and puts pressure on manufacturers who are struggling to keep up. 

So while it would be reassuring to chalk everything up to random acts of nature and look forward to the return to normal, with demand now far outweighing the capacity to supply, many of us will need to future-proof our supply chains against further disruption.

So what can you do? 

Longer term planning is one thing you can do. And that’s starting to happen. Discussions are now taking place to secure volumes of semiconductors for new vehicles in 2026. And this dialogue will help companies anticipate and mitigate potential issues in advance.

But even looking further ahead, how do you develop the resilience you need to respond to the unforeseen?

Focus on building the 3 pillars of resilience

Resilience is the capacity to resist, absorb, recover and adapt to disruption. 

If more of the unexpected were to happen, could you still deliver on your objectives? Even better, would you be able to rebound and prosper?

At Avnet Silica we focus on the 3 pillars of resilience:

1. Transparency (how far down the line can you see issues coming?)
2. Agility (how quickly can you adjust in the face of disruption?) 
3. Assurance (how can you absorb the initial impact of a major disruption?)

The key to building transparency is relationships. Not just with your first tier suppliers, but further down the supply chain too. This gives you an edge when it comes to seeing potential supply issues on the horizon.

The next pillar is agility - the ability to respond. If you have an increase in demand today, you’re potentially waiting a minimum of a year for that demand to be fulfilled. If you get a sudden raft of new orders, how can you fulfill it?

The final pillar is building strategic assurance. What happens in the face of another disruption? If a canal gets blocked and you can’t get parts for 4 weeks? If a factory has a major problem that forces it to close?

Building assurance helps the industry move away from a reliance on ‘just-in time’ production and start to build reserves ‘just-in-case’.

Where are the gaps in your current approach? 

So, with these three factors in mind, is your current supply chain fit for purpose or does it need to be overhauled? Or perhaps it can simply be supplemented? 

Maybe you’ll want to keep your current way of forecasting and ordering but also build greater buffer inventories to assure continuity of supplies. You still need to be conscious of the cost of inventory, of course, so perhaps you can outsource that buffer inventory to a service provider who can do this cheaper and more efficiently.

Or maybe you want to keep everything as it is today but develop better integration with your supply chain partners upstream to provide greater visibility. That way you can see problems coming and be more agile in your responses.

Whatever your individual circumstances, the important thing is to identify the gaps between where you are and where you need to be and formulate a strategy to close them.

There’s a lot to consider. But whatever you do, do something.

There’s no quick fix here and, unfortunately, no one size fits all. 

And whatever you decide, you’re going to need relationships with suppliers up and down the chain to strengthen your current position. If you don’t have those relationships already, they can be difficult to foster. Especially with everyone knocking on their door right now.

That’s where we often come in. As one of the world’s largest distributors, we have long-lasting relationships with manufacturers throughout the supply chain. We can see what's happening; what new components are coming, which are being phased out and where the largest bottlenecks are.

As we enter a post-pandemic era, and as supply struggles to keep up with the ever-increasing demand for electronic components, the supply chain remains disrupted and will do so for quite some time.

While short-term planning and 'just-in-time' worked up to a point, things have changed. And they're not going back any time soon. We need to evolve.

Companies that plan for the long term by building greater visibility, agility and assurances into their supply chain will be in a much better position to absorb future shocks and continue to deliver their product. Even in turbulent times.

If you'd like to speak to an expert about your supply chain challenges, please get in touch. We'd love to chat to you.

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