Site down isn’t just a problem for the likes of the New York Times and other media outlets that have ticked off a despot somewhere in the world. An onslaught of “denial-of-service” attacks in segments of the economy that have heavily embraced e-commerce and other online process management functions could spell disaster and trigger massive disruptions across the global supply chain.
There are many who see a massive outage of the Internet as highly unlikely but on a small scale many companies have reported technical glitches and hacker attacks that have for several days in a row disrupted relations with customers and suppliers. It happened recently at the New York Times but other companies have reported similar outages, including severe malware attacks that have taken out services in the energy market.
A recent site-down situation that impacted a leading electronics components distributor in North America points to the jeopardy facing everyone in all segments of the global economy today. The distributor was fortunate in that it could redirect customers to other online avenues for ordering its products while it tried to bring the impacted website back online.
With electronic commerce (e-Commerce) a significant and rapidly growing part of most manufacturers’ sales outreach, the potential for huge revenue losses due to missed opportunities when websites are hacked or go down due to technical glitches have grown tremendously.
A handful of major electronics OEMs, including Sony Corp. and Lockheed Martin Corp., have also fallen victim to hackers but, as the Wall Street Journal noted in a report, smaller companies that often lack the resources to ward off attacks have also been caught in their dragnets, adding to the challenges they face from technical problems that often cripple websites.
The problem could be intractable for the electronics industry where equipment manufacturers, suppliers and other supply chain partners have tightly woven operations around the internet. Nowadays, many companies rely heavily on the web for critical inventory, manufacturing, process, product and sales management information. We have all become so heavily dependent upon the web that few can function without it, meaning the huge benefits and productivity gains realized from the technology are also laced with enormous dangers for the individual enterprise and the industry as a whole.
Implications for Purchasing
The electronics industry has in recent years experienced an explosion in e-procurement with buyers and many component suppliers and distributors shifting more of their sales/purchasing transactions to the web. At top component distributors and many of the mid-tier companies online sales as a percentage of total revenue have been climbing in recent years and are expected to keep rising due to the efficiencies involved.
The U.S. Census Bureau in May reported e-commerce shipments surged to “$2.7 trillion in 2011, up 15.3 percent from a revised $2.4 trillion in 2011,” representing about half (49.3 percent) of total manufacturing sales of $5.5 trillion in the same year, up more than 12 percent from $4.9 trillion in 2010. The agency said the computer and electronic manufacturing sector was one of the five industry groups that reported “e-commerce shipments that accounted for more than 50 percent of their total manufacturing shipments” for the year.
The implications of a severe disruption in web service is clear. Buyers would lose trust in the system if they are unable to access websites considered critical to their purchasing needs. For consumers, the downsides to a hacked website are probably manageable but the implications for businesses can be quite dire especially in the manufacturing industry where companies are increasingly pushing to reduce the amount of inventories at hand in their race to keep costs down and maximize profits.
Nowhere is this more so than in the electronics industry. Since the crushing inventory-driven downturn of the early part of this decade, OEMs, electronics manufacturing services providers, component suppliers and distributors have invested heavily in online inventory management applications to increase visibility throughout the supply chain. The result has been a sharp reduction in the severity of the industry’s typical downturns. Since then, inventory levels across the industry have become more manageable with occasional excesses quickly corrected and shortages less glaring.
As part of efforts to find solutions to the old cycles of inventory shortages and excesses the electronics industry avidly embrace technological offerings that promise to reduce the whiplash effects of inaccurate forecasting and the attendant problem of component double-ordering. The internet not only gives companies the opportunity to order parts as, and when, needed online but it also gives them extra visibility into stocks availability at suppliers and distributors, helping to establish equilibrium of demand and supply in the supply chain.
Hackers bent on fomenting chaos and technological glitches can derail this, leaving the industry groping not just for information about stock levels but also unable to order, purchase or arrange delivery of components in the now fashionable just-in-time (JIT) system almost everyone has embraced.
This is potentially a huge problem for design engineers and purchasing professionals in the electronics manufacturing market who depend on short-term inventory acquisitions to meet a variety of needs. Since many companies have also shifted away from proprietary enterprise resource management (ERP systems to depend on the web for many of their procurement needs, a sudden and unanticipated shutdown of a supplier or distributor’s site can pose significant problems.
So, if you purchase components regularly online, whether from suppliers, distributors or brokers, there are a batch of questions you should have already asked and secured answers to by now. But just in case Electronics Purchasing Strategies has compiled such a list below. Some of these questions may seem quite basic but they are nevertheless quite relevant to appropriate resource and contingency planning for the purchasing market.
- Which products do we buy online and from which sources?
- Do we have secondary online suppliers for these parts and services?
- What stocks of critical parts do we have available and how close are these to the various manufacturing locations?
- What are the potential, identifiable risks to our supply chain if a vendor’s site goes down?
- What contingency plans do we have in place for when a supplier’s or distributor’s site is unavailable?
- Have we discussed this potential problem with the main e-procurement vendor and outlined other means of securing necessary components?
- What redundancies have been built into our biggest e-procurement partners’ websites and how else can we contact them if their main servers or sites are unavailable?
- Have we tested the redundancy plans to assure their viability?
- What partnerships have we developed to assure continuity of service?
- Is the senior management of the company aware and supportive of these initiatives?