Front End I AFDEC
Risk mitigation: what did the electronics industry learn?
“Have organisations across the electronic components supply network learned anything in the past few years?” Pascal Fernandez – Vice President at Avnet Velocity and Vice President of SPDEI, AFDEC’s equivalent in France thinks not. He suggests that electronic component distributors should put more emphasis on long term development of their supply networks, than on a continuing short term focus on cost, cost and more (less) cost issues
O
ver the past two years the electronics industry supply network has had to cope with more
extraordinary events than it has over the preceding 30 years. We’re familiar with the inevitability of a few years overproduction - the so called “buyer's market” – followed by an equivalent period of supply constraint - the “seller's market” – divided by an all too brief period of equilibrium, but in recent times we’ve seen the focus move from PPV (Purchase Price Variance) to component allocation, where buyers and sellers each maximise the opportunity in the certain knowledge that the tide will once again turn in their favour. No surprise then that for many organisations their supply focus was more on outsourcing cost issues than on building resilience and sustainability across the network. When the economy and market crashed in 2008, OEMs and Electronic Manufacturing Services (EMS) providers went on the cyclical cost crushing mission, where PPV and low cost labour ruled. The supply mission was to create the conditions of mobility, shrinking transport time and cost while decreasing inventory or more appropriately, outsourcing the “hot potatoes” in a VMI (Vendor Managed Inventory) agreements to distributors. This decade saw a series of events that changed the normal cycle beyond all expectations. First the high tech industry ‘V’ shaped recovery came sooner than expected, defeating all forecasts of a ‘W’ or a ‘square root’ shape. Growth continued for eight consecutive quarters, draining down manufacturing capacity; stretching lead times; challenging customer service; and making the Supply Network once again the focus of all attention. OEMs and EMS organisations had to juggle their production capacity based on product availability and served their key customers for several months with unpredictable lead times. They also had to take a deep dive into their supply and operations process, raise their understanding of risk mitigation and refocus on their Supply Network strategy.
8 October 2011
Sustainability of supply has become a strategic pillar, taking into account not only the environment and cost aspects but also maintaining smooth manufacturing flows and high levels of customer service.
An extraordinary recovery This extraordinary market recovery was blighted by natural disasters, which further stretched the supply chains, sending clear signals and wake up calls to many in the industry. The Icelandic volcano with the unpronounceable name not only produced pretty pictures but for over a week put air traffic on hold in most of Europe. Many organisations discovered their over dependency on expensive, fast air transport but then came to realise they had little or no alternative means to get materials from suppliers who maybe thousands of miles away.
The Japanese earthquake and tsunami, beyond the dreadful human tragedy, also highlighted the over dependence of the electronics industry on a small number of primary raw material suppliers. Without their vital output the next level of the supply network could not manufacture, once again highlighting their strategic importance in the supply network sustainability.
So what of the future now that the
unpredictable has happened a few times in the last two years? As the industry aftermath of the Japanese crises is better understood and lead times decrease or stabilise, some organisations will inevitably go back to their previous ways of sacrificing their supply network security on the cost-saving alter. Blithely proceeding towards the next - some would say inevitable - disruption in the electronics industry business cycle, I'd suggest may not be the best strategy.
De-risking the supply network A strategy of “de-risking” their Supply Network should be the N°1 focus for many organisations in the electronics industry but it does require executive management direction and continuing active support of true supplier partnerships.
The strategy must include analysing risk in all elements of the supply network and positioning supply & operations in the
centre of every conversation. All parties must realise that inventory holding is not down to accident, neither is it a compensation for inefficient supply network processes. Inventory is an expensive, conscious forward-thinking investment that supports better manufacturing flexibility and responsiveness leading to improved overall customer service.
How distributors address the risk management challenges for their OEM and ODM customers and in the process position themselves as a solution enabler and credible partner must inevitably have a key impact on their future success.
Syndicat professionnel de la Distribution en Electronique Industrielle (SPDEI) | Details on the French Electronics Industry Association may be found at:
www.spdei.fr
Pascal Fernandez is Vice President of SPDEI
Welsh Electronics Industry Networking Evening Thursday 27th October 2011 at 18:00 – Cardiff, Wales
This informal event will provide you with an opportunity to get an update on the latest industry trends, mingle with friends, colleagues, business associates and meet new contacts across the industry. We have organised three 15 minute presentations to entertain, inform and stimulate discussion…
“The Results of the UKEA Industry Trend Survey” – Dr Chris Young – Chief Executive – ESTnet “UK and Eire Electronic Components Market Update” – Aubrey Dunford – Market Analyst – ecsn “From Turbulence to Tranquillity” - Alan Baker – Winslow Adaptics
For additional information about the event or to register please contact either the ecsn secretary Email:
enquiries@ecsn-uk.org Phone: 01763 274748 Fax: 01763 273255 or the ESTnet Email:
chris.young@estnet.uk.net Phone: 01792 222475.
Components in Electronics
www.cieonline.co.uk
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