How Procurement Can Better Evaluate Risk vs. Opportunity

The semiconductor and electronics supply chain, like many other industries, is experiencing a renewed round of diversification strategies. There are a myriad of reasons and market opportunities driving the strategic shifts, but the bottom line remains a unified goal of increased business (volume and revenue) at improved costs with ever more finely managed risks. Among the drivers of these supply chain shifts are richer and more nuanced B2B data sets that open new questions into who bears various supply chain risks, an example of which is the shifting costs of major commodities such as oil.

Supply chain strategies are increasingly better informed and procurement solutions are including far more extensive data sets than ever before. In essence, the risks to global business really haven’t changed much over time, but visibility into supply chain tiers is dramatically different. This point, among other insights into key issues impacting procurement strategies today, was highlighted during a recent interview with Kevin Brooks, Chief Marketing Officer for Ivalua.

As Brooks noted, B2B partners continue to become far more (pre-) connected through cloud-based tools giving greater visibility into suppliers and down through the tiers of suppliers’ suppliers. While this supplier insight might seem to make supplier decisions more transparent, there are some real challenges that arise. How these decisions are made and how strategic diversification opportunities are evaluated now demand greater data analysis capabilities and in return, they can reap greater procurement agility.

Ivalua, for example, is seeing the level of inbound requests for risk topics increase. In particular, there is a rise in demand for strategically incorporating additional supply chain risk metrics into market diversification strategies. One tangible example of this challenge that Brooks discussed is the impact of lower oil prices on procurement which leads to the critical question: “Who bears the risk?”

This is a timely question for the electronics industry with the current supplier shifts due to consolidations, M&A activity, forex effects, and macro-economic events such as “Make in India” and China’s localization trends. The electronics supply chain is facing a new set of decisions around diversification strategies. Among the challenges facing companies as they extend into new markets, are decisions about near-shoring since low oil prices significantly reduce transportation costs.

As Brooks explained, there is a growing desire to have increased visibility of extended risks born by the supply base. “It isn't enough to simply track and source oil-based commodities for better prices. Today, procurement teams must examine the impact – and risks – not only to their business but also to their suppliers,” Brooks reiterated. The goal is to understand how the supply mix is trending in order to strategically increase or decrease the diversification of suppliers, and in what manner.

In considering the supply risk equation from the variable of lower oil price impact, it becomes apparent that the strategic variables can shift quickly. This rapid shift is particularly true given today’s complex global supply chains established to improve margins and access to local markets, simultaneously. For example, Brooks offered, in a situation where risks are considered in terms of transit costs, how you manage your supply base when dealing with smaller regional players must necessarily shift. The smaller, regional players, who have increased risk exposure to fuel costs, are going to be more quickly affected by fuel costs changes than the larger, global players, who can assume greater fuel cost risks.

Procurement and supply management risks are increasing in complexity. Add to this challenge of understanding ever greater and nuanced data that must be coupled with increasingly localized supplier networks, and risk management scenarios quickly become a significant challenge in and of themselves. When you then include variables such as oil price fluctuations, which have great impacts on key suppliers and costs along the chain, there is a real need to have agile procurement strategies that appropriately weight all of these variables. At stake is agility, a critical element of market success in the semiconductor and electronics industry.

About the author

Lisa Cairns

Lisa Ann Cairns, Ph.D., Contributor Lisa comes to EPS with a diverse background that includes 10 years of hands-on experience in IT as well as in semiconductor and electronics distribution. The majority of that time, Lisa spent in the role of Senior Market Analyst and Senior Contributor at a leading, independent distributor of semiconductor and electronics. Prior to that tenure, she was a professor of linguistic anthropology, engaged in social science research, modeling, and analysis. The skills of observing and explaining complex social patterns adds a rich framework in which to indentify and to understand the range variables that constantly affect today’s globalized marketplace. Lisa’s admixture of experiences brings a fresh eye and a contextualized understanding of the global semiconductor and electronics supply chain. Lisa’s market analyses provides readers with unique views spanning micro- to macro-level industry events, synthesized insights bridging business and economics, as well as connecting the dots between upstream to downstream industry events that affect and inform distribution strategies. Lisa has a Ph.D. and A.M. in Linguistics from The University of Chicago, during which time she was awarded the prestigious National Science Foundation Doctoral Dissertation Research Improvement Grant. She holds a B.A. from Hofstra University, where she was Hofstra's first woman undergraduate to be awarded a Fulbright-Hayes Grant for independent research prior to attending graduate school. Lisa is currently consulting and freelance writing and can be reached at lcairns@lcairnssolutions.com.