It’s Time We Talked About Risk: The Next Normal For Supply Chains

Supply chains carry an inherent risk as a result of their size and complexity, but there are ways to mitigate these issues. The problem is that far too many organizations fail to think about the various ways that their supply chains could be affected by global politics, natural disasters, and as we’ve seen, pandemics. 

It’s important to remember that risk doesn’t look the same for everyone. It also doesn’t have a one-size-fits-all solution. Instead, it’s about leveraging data, targeted intelligence, and industry insights to mitigate potential delays or issues wherever possible. 

Supplyframe Insights Showcase Heightened Risk in North America 

As part of our part intelligence, Supplyframe offers a proprietary metric called Risk Rank, which presents quick and valuable insight into individual parts on your BOM.

By using a scoring system, combined with various levels of constantly-updated data, we are able to provide a snapshot of the inherent risk (or lack thereof), for all the components in our catalog. 

We do this by analyzing inventory, end-of-life (EOL) status, and price volatility with various weightings for each factor and the stages of the manufacturing process, to calculate the final score on a scale from one to ten. Ideal components will feature a lower score. 

Considering this, our internal data has shown an interesting trend in regards to average risk across major part categories: 

Specifically, North America is showing a higher Risk Rank across all categories than other parts of the world. Why is this? There are a number of reasons that could be attributing to this trend, including but not limited to: 

• Inventory issues
• End-of-life status
• Price volatility 
• Manufacturing delays due to COVID-19
• Ongoing trade wars or geopolitical issues

Though it’s difficult to pinpoint exactly why we’re seeing this trend, it brings to light some important takeaways that all organizations should consider as they craft risk mitigation strategies for the next normal. 

Supplyframe’s proprietary Risk Rank metric is a crucial part of sourcing intelligence solutions. By considering multiple factors and stages of the manufacturing process, we are able to provide a snapshot into the inherent risk for every line item on your BOM. 

Specifically, we look at the risk during the design, production, and long-term phases of manufacturing. This allows us to predict risk in the moment, but also forecast the viability of a component in the future as well. 

Potential sources of risk, including situations like COVID-19, are varied and unpredictable. As a result, our metrics are constantly changing and evolving. We’re working to improve Risk Rank in a number of ways that will shine a light on some of these trends we’re seeing in the electronics industry. 

Stay tuned for more information very soon! In the meantime, let’s take a look at how you can improve your risk mitigation strategies today. 

Key Takeaways For Risk Mitigation Strategies 

Looking at this data, and knowing the effects of COVID-19 on your business, it’s important to approach risk from a new perspective.

We’ve long championed the importance of risk mitigation, as evidenced by Risk Rank being in the foundation of our solutions. The pandemic has revealed what can happen when supply chains are not prepared or resilient against potential risks. 

Here are some valuable takeaways that inform a smarter approach to risk going forward: 

Diversify Your Sourcing 

As our data shows, there is increased risk in sourcing from a single region or supplier, in this case North America. In the wake of COVID-19, we’re also seeing more and more countries move away from China after the manufacturing shutdowns in the earlier days of the pandemic. 

This is an important strategy for both new product introduction (NPI), and for existing products. Speaking on the Embedded Insiders Podcast, Supplyframe’s CMO Richard Barnett also highlighted a statistic from a recent research report, saying that 35% of respondents claimed they had to rework existing product designs due to shortages from their typical suppliers. 

This alone is enough of an argument to make diversity a major focus in your supply chain. 

Develop a Strategy 

A risk mitigation strategy should be an integral part of your supply chain going forward. While no one could have predicted a pandemic like COVID-19, other types of risks have found their way into the supply chain in recent years. 

Diversifying your sourcing is a good start, but the true test of time will be how your organization handles the next test on your supply chain. It’s important to develop an answer to this question and plan for all contingencies. 

Harness Data And Make Intelligence Available at Key Decision Points

The final piece of the risk puzzle is intelligence. Using algorithms like Risk Rank, you can better forecast the viability of components on your BOM, which lends itself well to current and future NPI efforts. 

Ultimately, data is the best resource you could have when tackling a proper risk mitigation strategy. This is also the first step in a longer conversation around risk as a concept in the electronics supply chain. Talking about it is important, but it’s the decisions we make now that will influence our success in mitigating the next major challenge.