The future of supply chains: how transparency can save you billions in the face of disruption

Supply chain transparency

Supply and demand for electronic goods and components have fluctuated dramatically in the past couple of years. As a result, weaknesses in the global supply chain have become plain to see.

First there was a global pandemic. And then came a swathe of disasters - from blocked canals to factory fires. At the same time, the market, and world, in which we operate grows ever more complex; there are changing trade agreements, tax laws, new Brexit protocols…the list goes on. And all of these factors increase risk to the global supply chain.

By now, most of us have come to the realisation that, unlike with shortages in the past, we’re not going to bounce back to normal. It’s time to look ahead, and consider how we can make our supply chains more resilient to future disruptions.

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 well can you absorb the initial impact of a major disruption?

Here we’ll be looking at what transparency means, why it matters, and how you can build more of it into your supply chain moving forward.

When you can’t see what’s coming

When COVID first hit, consumer demand for certain products – cars for example – dropped drastically. But just as manufacturers were coming to terms with this fluctuation, the reverse happened. Demand for certain electronic products shot through the roof and there suddenly weren’t enough semiconductors to go around.

With some original equipment manufacturers (OEMs) and brands unable to source what they needed, chaos ensued. Production lines were shut down. Cars were shipped unfinished. And the automotive industry, to take just one example, lost out on hundreds of billions in revenue in 2 years.

It would be an oversimplification to say a lack of transparency alone caused such huge losses, and yet having access to this information earlier will give you more time to respond and potentially reduce the impact of further disruption.

A big ‘part’ of the picture

If another crisis were to hit, do you know whether you’ll receive enough of the components you need to meet your production forecasts in 3 months’ time? If you’re not sure, then you don’t have the right level of transparency to thrive in today’s marketplace.

One of the core issues of the past year or two has been the ability to source the right parts when the supply chain is faced with too much demand. And at the very heart of this is how orders are aggregated as they move down the supply chain.

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Say you’re an OEM in the auto industry, and you receive 6 orders for 6 cars with infotainment systems. You order 6 infotainment systems from your chosen systems manufacturer. In order to build them for you, they need semiconductors. But they’re also producing for other brands so they collate (aggregate) all the orders coming into them so that they can put 1 order into their chosen semiconductor manufacturer. This also helps them benefit from economies of scale to drive costs down too.

Now say there’s an issue further down the line, with the silicon wafer needed to make semiconductors, for example. There’s a shortage, and it’s a slow and complicated process to manufacture more. So now the semiconductor component manufacturer is subject to delays. They don’t have enough parts to fulfil all their orders so they have to decide how many to allocate to which of their customers. Their customers include the systems manufacturer that’s building your infotainment system and they now have the difficult task of figuring out who they’re going to allocate their finished product to as well.

As a result of aggregation, you don’t know which of the semiconductors that are produced down the line are going to make their way to you in the infotainment systems you’ve ordered. And if you don’t know in advance what’s coming to you, or what isn’t, then you may not be able to fulfil your customers’ orders.

It’s not just what you know, but who you know

Relationships can be critical in all of this. Some of the largest car manufacturers have solid relationships with all the suppliers in their supply chain. So if, say, demand for silicon wafer can’t keep up with supply, these lines of communication give the car manufacturer greater visibility and influence. That could mean it’s more likely they’ll get what they need when supply is squeezed.

In times of severe constraint and allocation (like today) you at least need a line of sight all the way through to tier 2 on your supply chain so you can see issues coming. Even better, the ability to negotiate directly with tier 2 seriously enhances your ability to ensure supply continuity by getting the parts you need.

How can you track your parts up and down the supply chain?

In a word, disaggregation. In this context disaggregation refers to separating out your order so you can track it up and down the supply chain. You can also work with a partner to help you achieve this.

We do this at Avnet Silica by creating ‘supply chain node identifiers’ unique to the brands we’re working with. In other words we let tiers 1 and 2 know who they’re manufacturing parts for and we allocate a unique identifier to each of those parts.

This way components throughout the OEM’s supply chain can only ever go to them and, regardless of whatever allocation is going on elsewhere, they’ll know exactly what’s coming down the line. In other words, the OEM will know exactly which products are, physically speaking, reserved for them and how close these actual parts are to their production facility.

This also helps with traceability; say there was a product recall down the line, supply chain node identifiers can help OEMs quickly pinpoint the exact part they may be dysfunctional - which can be more difficult when large numbers of parts are aggregated.

Here’s where it gets tricky. Complete disaggregation will cost you. When your order gets aggregated by tier 1, they’re able to buy in bulk from tier 2. Obviously this has a cost saving benefit for tier 1. But it might be a trade off between a higher cost now so that you can plan better further down your pipeline.

And then there’s accountability too. If you have complete control and/or transparency then tier 1, could in theory, consider you as being directly responsible for securing the volume of parts you need from tier 2. And this comes with the danger of your tier 1 supplier washing their hands of responsibility entirely, expecting you to get them what they need to fulfil your order. 

So while disaggregation comes with added complications and costs, the benefit is that you have the components specifically reserved for you.

There’s no easy answer. But something has to change.

We get the temptation to stay as is. If you don’t have transparency then you’re not accountable if things go wrong down the chain. Unfortunately, though, it’s still you - and your customers - that will pay the price, or lose out.

We’ve seen the very real impact of unforeseen disruptions, and how that impacts supply and demand. We’ve seen closed production lines, unfinished products and huge revenue losses.

And a big part of tackling this issue is knowing whether or not you can source the right parts when the supply chain is faced with too much demand. This is where aggregation can come at a cost - how can you be sure you’ll receive the parts you ordered from your suppliers?

Building relationships and thinking about disaggregation can be part of the solution, whilst acknowledging that the latter comes with its own set of challenges.

We know that each change a business makes to its supply chain comes with risk. And we know there’s no one size fits all. So, if you'd like expert support with your supply chain challenges, please get in touch. We'd love to see if we can help.

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