Electronics companies that have best practices in managing supply chain risk say the key to a successful strategy is the ability to obtain and analyze information about suppliers in any region of the world.
If an earthquake strikes a region disrupting production of critical components, an OEM or electronics manufacturing services (EMS) provider needs to learn as quickly as possible the suppliers affected by the quake, the degree of damage to facilities and the impact on production and alternative sources of supply.
Flextronics, a Singapore-based EMS provider with more than 500 OEM customers and 1,100 suppliers worldwide, uses a homegrown software tool that helps the company manage supply chain risk. The tool provides real-time information about natural catastrophes such as hurricanes, earthquakes and the effects of man-made disruptions such as strikes, political unrest, social upheaval or environmental disasters.
In a natural disaster, such as the recent typhoon that devastated the Philippines or the earthquake in late October that shook Taiwan, the tool provided invaluable information concerning Flextronics’ suppliers and customers that were affected, says Tom Linton, chief supply chain officer for Flextronics.
He explains that the software provides Flextronics visibility into the supply chain: “It is cutting-edge because we are taking information and turning it into actionable, real-time targeted information.” For instance, when the 6.6 magnitude earthquake struck Taiwan on October 31, the tool quickly informed him about which Flextronics facilities, suppliers, products and customers were affected.
“Companies are more likely to have an impact from a supply disruption because they are carrying less inventory,” says Tom Linton, chief supply chain officer for Flextronics.“I got this information,” he says, “within minutes of the earthquake. It showed a list of our suppliers in the zone. There were 27. Those suppliers feed 41 factories, and I had the name of every customer impacted. The tool is live and constantly updated.” If Linton knows that a supplier's production has been halted by a disaster, Flextronics can switch sources in order to keep production lines running.
Reducing risk for customers
The tool also helps Flextronics manage risk on behalf of its customers, which has become more important over the last 10 years because more OEMs are outsourcing.
As OEMs rely on Flextronics and other EMS providers for manufacturing, they are also depending on them to help manage supply chain risk.
Flextronics has about 500 customers. According to Linton, “About 250 of our customers have no factories--Microsoft, Amazon, Cisco, Apple, down the line. We are their manufacturing capability. We are their supply chain and are managing risk for them."
Linton says managing risk is important to companies. He says studies have shown that companies that “cannot navigate through risk have a huge drop in their market capitalization."
In addition, the ability to manage risk is a competitive advantage. "If there is a supply shortage in some area, if there's an earthquake in Taiwan that damages a facility, the competitor who knows about it first is going to have an advantage," says Linton. “I want to be the first to know and the first to react."
Running lean means more risk
Linton adds that managing risk is becoming more and more important as companies run leaner, carry less inventory and introduce products to the market quicker. “Companies are more likely to have an impact from a supply disruption because they are carrying less inventory. You could run out of parts in days," he says.
“With vendor-managed inventory, high velocity and lean supply chain, customers want configuration at the last possible minute. The slightest little hiccup in the supply chain can create a very big problem," explains Linton.
Those companies that manage risk the best will be successful.
“If you have a mindset of anticipating things happening and navigating through them when others are stumbling,” summarizes Linton, “then you have some competitive advantage--and it's all about competitive edge. When I look at risk, I want to be better at it than anyone else."