For years now I have been advocating the importance of having a comprehensive and proactive risk management strategy to protect the continuity of the supply chain when a disruption occurs. And though I believe that there is indeed a greater awareness of the importance of risk management, the apparent panic ignited by the recent Hynix factory fire leads me to believe that there remains a significant gap between perception and practice.
The jury is still out on just how severely the SK Hynix fire will impact the supply chain in the coming months. DRAM prices have already soared almost 20 percent. And though Hynix has reported that they have already resumed partial production, when you are talking about a company that supplies nearly a third of the world’s DRAM chips, even a 10 percent capacity reduction can lead to shipment delays on tens of millions of electronic end products. Considering the industry is heading into peak holiday season, the ramifications could be much more costly than expected.
But, it doesn’t have to be this way. Yes, there will always be those unforeseeable events that will throw the global supply chain out of balance, but there are many strategies that can be employed to mitigate risk and bolster the sustainability of the supply chain.
In order to manage risks, you must understand them and their impacts. So, a thorough risk assessment is generally the first step in the development of a proactive supply chain risk strategy. This assessment starts with the identification of the primary sources of risk in your supply chain. Then you need to gauge the likelihood of occurrence and estimate the financial impact so that you can prioritize your supply chain based on the likelihood/impact and develop a strategy to mitigate or reduce the likelihood/impact.
The Supply Chain Council “Value at Risk” (VAR) metric can be helpful in this effort. VAR provides a more methodical and financially based means of evaluating each risk factor, thereby enabling companies to define where resources should be focused. Periodic reviews will assure that your risk management strategy remains relevant as your supply chain evolves.
Since the supply chain is inherently collaborative, the process of identifying, assessing and prioritizing risks within the supply chain should be a collective effort. This, however, requires a degree of communication and transparency of information among trading partners that is not commonly available.
While there are many tools that can be used to gain visibility into the extended supply chain, at the core of this effort must be a trusted relationship with your supply chain network partners and a mutual commitment to improving supply chain effectiveness for the betterment of all concerned parties. This trust must be built over time, which is why it is crucial to foster a “win-win” atmosphere before an adverse event arises.
Once a foundation of trust and transparency is established, the big variable that remains is the response. Translating demand insights into a coordinated supply chain response is definitely a challenge. It is important for OEMs to establish a baseline expectation from the very beginning of an engagement so all partners are clear about what they need to do to ensure their response is timely and meets your requirements.
Events such as the Hynix fire serve as an alarming reminder of just how precarious the stability of the global supply chain can be. But, if you have a supply chain based built for continuity, with collaborative relationships with your supplier and distribution partners; you can diminish the downside impact of a disruption, but also actively advance your competitive position in the market.
Gerry Fay is chief global logistics and operations officer at Avnet Inc. He has been named president, Avnet Electronics Marketing global, and will assume that position in October.