Rethinking Risk Management for Today’s Global Supply Chains

Risk management is an ever-present factor across manufacturing organizations’ supply chains. While they all have strategies to address supply shortages, quality control, and rising prices and costs, many are challenged in scope and need help to operate at peak effectiveness. 

Market uncertainty has long required changes in the most well-vetted sourcing strategies. However, following COVID-19’s “black swan” impact, it is time to incorporate the once-siloed discipline of risk management into every sourcing professional’s toolkit.

Risk intelligence and mitigation was once the sole purview of C-suite executives overseeing. However, today, it plays a key role upstream in the design phase of products that rely on complex global electronics value chains. Supplyframe found that 80% of a typical product’s lifetime risk and cost is “locked in” during the product’s design phase. 

Many executives view procurement’s role as guardians of cost efficiency in an uncertain global economy. Procurement professionals must cope with ever-increasing complexity as manufacturers demand electronic subcomponents for an ever-wider range of innovative applications.

Given these conditions, the best way to introduce resilience into the system is to incorporate cross-functional risk assessment at the beginning of the new product introduction (NPI) process. Collaboration within a single, always up-to-date bill of materials (BOM) will ensure fewer disruptions and higher profitability overall. 

Existing Gaps in Resource Planning Across the Enterprise 

Traditional enterprise resource planning (ERP) methods and product lifecycle management (PLM) solutions lack the capabilities required to support cross-functional efforts in the organization. This can lead to numerous challenges during product rollouts. 

A Supplyframe survey among industry professionals found that 81% of respondents’ sourcing applications fail to identify end-of-life (EOL) risk components, forcing them to make spot buys at premium prices after product launch. Another 57% reported their new product launches were either delayed or canceled, while 39% said the selection of the latest product components frequently requires manual interventions to revise their BOM document.

A capable solution should be able to prequalify alternate suppliers and components that align with form-fit-function criteria. While this could require additional engineering review in the NPI process, establishing these authorized alternatives would empower procurement teams to proactively address any issues without the need for costly production delays. 

The Next Frontier: AI Decision Making

No number of individuals or enterprise teams can process the sheer volume of data and insights that exist within the global electronics value chain. Instead, digital transformation should focus on AI-enabled intelligence platforms that process and contextualize relevant insights within a “living BOM.” 

Gone are the days of Excel spreadsheets and limited insights that don’t account for external risk factors. Industry leaders quickly realize the need for better intelligence that leads to smarter, more profitable sourcing across the product lifecycle as they face countless forms of risk in their supply chains. 

Shifting Left: Bringing Risk Mitigation into The Product Design Phase

Today, manufacturers save millions of dollars using virtual testing created by digital twins. This shift allows engineers to access manufacturing data early in the manufacturing planning. In addition to saving money, digital twins speed up validation and reduce the risk of operational failure.

This capability translates into real value for companies that “Shift Left” can save millions because they can virtually rework design and manufacturing and even create new maintenance schedules before ever building a production line. Pinpointing potential issues early on within the virtual environment enables organizations to deliver higher-quality products on budget and schedule.

Bring intelligence with visibility into risk factors like lead time, part life cycle or popularity of design for electronic components and other systems. Work with tier-one suppliers as part of your trade-off decision-making process.

Look beyond total manufactured value add or finished system cost and get visibility into bills of materials so your engineering, sourcing, and procurement teams have the necessary intelligence to make the right component trade-off decisions collaboratively.

Strengthen Supply Chain Resilience with Strategic Partnerships

Find new ways to isolate and allocate critical parts you may need to protect or buffer actively. Distributors offering value-added supply chain services help play that role because of their market visibility and commodity coverage. 

Such third parties can assess inbound inventory to tier-one suppliers, manage that inventory, and, when needed, change the mix of what they manage. They can also offer early analysis of the supply chain health of a design bill of materials and help improve life cycle resilience by suggesting alternate parts, suppliers, or other options reduce risk to continuity of supply.

It can be challenging to look beyond the traditional focus areas of cost savings and manufacturing value-add. However, you can explore and leverage your partners’ broader capabilities and global footprint to improve supply chain resilience, agility, and risk-sharing.

Expanding the Company’s Influence on Supply Chains 

During the pandemic, major OEMs began engaging key semiconductor suppliers like TSMC and GlobalFoundries on fab capacity alignment to support sub-tier suppliers for ICs. However, this didn’t work for the mature, analog ICs used in combustion engines because that’s not where the focus was for new fab capacity.

As McKinsey notes, the automotive industry has a high demand for nodes greater than 90 nanometers, legacy nodes. On the positive side, major suppliers like Intel, Infineon, onsemi, and STMicroelectronics—with which OEMs have long-term agreements—have increased forecasts and visibility for better alignment. But now, the automotive industry must expand its visibility and monitor risk beyond the most critical ICs to a broader portfolio. 

This is crucial given the thousands of components, 400 different sub-commodities, and hundreds of suppliers. This means that risk exposure is not just in long lead times and automotive-grade ICs—it’s also in other categories.

The Bottom Line

Decreasing supply chain risk requires an integrated transformation that aligns engineering with procurement, sourcing, and risk assessment teams. It includes introducing the right outside-in intelligence and priming your ecosystem to position you for rapid risk trade-off detection and rebalancing.

Avoid relying solely on historical data; bring real-time intelligence from the outside world. Provide each key member involved with product design with real-time intelligence at the decision-making point so people can make smarter decisions sooner. Make that intelligence available across your engineering, procurement, sourcing, and risk assessment teams to encourage collaboration and help ensure alignment.

We’re still not seeing enough of that occurring, even after all we’ve learned during the pandemic. Visit Supplyframe.com to learn how we can help empower your teams with the intelligence and capabilities to shift left and transform risk management in your supply chains.