Santa Clara, Calif. − Leading global supply chains depend on the same small group of sub-tier suppliers, concentrating the risk and increasing the potential for supply chain disruptions, according to a study from Resilinc Corp., a provider of supply chain resiliency solutions. The study focused on the high-tech and automotive industries.
A key finding reveals that many large organizations are not aware of the risks involved with sub-tier supplier concentration occurring deeper in their supply chains, which means they aren't adequately prepared to mitigate those risks, said Jon Bovit, chief marketing officer, Resilinc.
The analysis finds that global supply chain risk is concentrated in specific sub-tier suppliers and localities, which poses increased disruption risk potential to the companies exposed to those dependencies, said Resilinc. In the high-tech and automotive supply chain, a majority of suppliers are dependent on sites that are owned by four suppliers: Taiwan Semiconductor (TSMC), Amkor Technology, ASE and United Microelectronics (UMC).
These four suppliers "represent an astounding 20 percent of the overall dependency," said Bovit. A number of companies are highly dependent on these sub-tier suppliers, but not all of them have the visibility to validate the degree of dependency and understand their exposure, he added.
"What we found is that they aren't always the direct supplier," explained Bovit. "They could be a subcontractor in some cases to tier 2 and tier 3 suppliers. They don't know that they are dependent on these suppliers."
"We also found that those risks could be substantial," said Bovit. If there was a disruption in certain localities or at certain sub-tiers, the disruption could delay shipment by a few weeks or it could be catastrophic, he said.
"We believe in proactive monitoring of these disruption events because being able to identify problems as fast as possible is key to avoiding big revenue and cost increases, and if bad enough, brand impact," added Bovit.
The research also finds that more than 50 percent of all sites analyzed are located in four countries: Taiwan, China, the U.S., and Japan with a high degree of supplier factory aggregation in a small sub-set of regions. This creates global supply chain hotspots, said Bovit, and many of these hotspots are in areas known for susceptibility to natural disasters.
As a result of the findings, Resilinc is recommending that companies speed up the rate at which they map the supply chain in the sub-tiers and understand the dependency at the part level. "It's not necessarily good enough to just understand and map the supply chain. Companies need to drill down to the part level, where those parts are manufactured in the supply chain. This should be a top priority. Only when doing that can you make sound decisions," said Bovit.
The findings are based on a subset of Resilinc's global supply chain mapping data from roughly 600 large and medium-sized suppliers across more than 2,500 supplier sites in more than 50 countries. The researchers focused the analysis on sub-tier suppliers because risks of disruption are often found deep in the global supply chain, and large companies are concerned about the scalability and vulnerabilities of their multi-tier supplier chain when planning new product launches, said Resilinc.
Even though companies may be dependent on these four suppliers because they offer unique capabilities, there are many techniques and approaches they can take to protect themselves against their dependency on these suppliers, said Bovit. Some of those strategies include engaging in a closer relationship with them; making sure they have adequate inventory to cover a certain amount of time, and ensuring that those companies have adequate protection, he added.
"Education is sometimes half the battle," said Bovit. Getting this information out is critical even "if it means that you're raising an alarm bell to get people's attention to engage in deeper conversations."
"Sourcing, procurement and supply chain executives need greater visibility into their suppliers’ global footprint and site locations, sub-contractor and sub-tier supplier dependencies, site activities, part’s origin, alternate sites, recovery times, emergency contacts and business continuity planning (BCP) information," said Bindiya Vakil, CEO, Resilinc, in a statement. "Resilinc's clients are harnessing this intelligence and gaining visibility on an on-going basis so that supply chain resiliency can be institutionalized across the board."