Blog Post
Supply Chain

New Approach: How to Reduce the Risk of Supply Chain

Tuesday, March 8, 2022

Global supply chains have taken quite a hit in the past two years. The Covid pandemic, alongside the never-ending electronic component shortage, has brought unprecedented risk to the supply chain. 

As a result, companies have been forced to identify and reduce risk in their supply chains to become more resilient. Done well, it can significantly strengthen your weak spots and turn today’s risks into long-term growth.

Identifying supply chain risks

There are two main risks to the supply chain that OEMs and EMS companies should prepare for and mitigate. First, and probably the most obvious to many of us, is the supply risks caused by interruptions to the flow of products within the supply chain. This has resulted in acute shortages of components and extended lead times, which in turn has created problems for the finely tuned electronics supply chain.

Second, manufacturing risks caused by shortages could potentially create even greater problems for the industry in the coming year. For example, at the start of the crisis, many companies ordered more components than they needed to avoid stockouts. This phenomenon, called double-booking, often distorts demand signals. As a result, it increases the risk of excess inventory building through the supply chain. 

When the demand falls, it will inevitably generate considerable stocks that will take organisations several months or even several years to liquidate.

Ways to reduce supply chain risks

Ultimately, the gridlock is a consequence of an extended period of frequent, unfamiliar, and high-impact risk events disrupting supply chains across the industry. In the year ahead, as we prepare for more widespread disruption, companies need to make three changes to best prepare their supply chains. 

Build an adaptable and flexible supply chain

Companies should build flexibility and resilience across their supply chain to successfully address unexpected shifts in market conditions. This requires adopting strategies to ensure the organisation has insight across the supply chain to predict the demand and delivery of products. Companies can then use that insight to make the right inventory decisions. It is also important to invest in flexible capabilities to maintain supply to meet demand in the longer term.

Limit disruptions by creating redundancy

Another way to build resiliency and limit disruptive events is by creating redundancies throughout the supply chain. The idea is to reduce the number of risk events that disrupt their supply chains in the first place. This can be accomplished by integrating risks into their supply chain’s strategy at the planning, not just the execution phase.

Companies should hold extra inventory to avoid stockouts. They should also use multiple suppliers as a stop-gap measure against unexpected shortages. Your suppliers should be able to provide additional surge capacity when there are disruptions of supply to ensure business continuity.  In case of overstocks, a company must take steps to move the extra inventory efficiently through its supply chain. 

Optimise your supply chain

Before seeking out additional new capacity, companies must first consider optimising existing capabilities to ensure operational effectiveness. By leveraging supply chain software to analyse demand, companies can significantly reduce costs and optimise operations. Also, critical is the supplier relationship, which an organisation must manage and nurture properly to improve productivity and profitability. 

In addition, companies should implement tracking tools to monitor shipments and reduce supply chain delays. Furthermore, investing in automation software can help the company gain the agility and visibility required to achieve resiliency and capacity. Reliable, real-time data from automated processes allow organisations to see what's coming and adjust on the fly.

Lastly, using an inventory management tool allows your company to plan, track, and control the delivery of products by suppliers. It also provides data analytics for improved decision-making of supply chain management.

Collaborate in a circular economy

It’s also important to collaborate with key stakeholders to adjust manufacturing capacity based on components likely available for the long-term, despite the constrained environment. Fostering a higher level of business-to-business collaboration can help companies build a more resilient and connected supply chain. They can then leverage that connectivity to strengthen their collaboration with suppliers and B2B customers.

Likewise, companies can collaborate and work towards a circular economy by sourcing and selling electronic components to one another in a closed-loop system. This ensures components are given a second life instead of scraping or disposal in landfills. Organisations that embrace circularity in their manufacturing will also have their reputation and brand image boosted significantly.

New approach: How AIRENC can help

Supply chain disruptions are inevitable, and throughout 2021, that was proven time and time again. AIRENC helps OEMs and EMS companies organisations balance the lean JIT (just-in-time) inventory strategy with efficient risk mitigation.

Through the AIRENC peer-to-peer transaction platform, we ensure no partner is left without the components they need during shortage or crisis. Our platform enables OEMs and EMS to collaborate and source critical components from a community of vetted suppliers and vendors to stabilise their supply chain. In addition, AIRENC facilitates seamless collaboration and information sharing among OEMs and EMS. Companies can gain real-time insights on demand signals and respond to any disruptions quickly by leveraging their connections on the platform. To that end, we help OEMs and EMS to reduce supply chain risk and adapt to unforeseen shifts in the market more effectively.

Contact us now to see how AIRENC can help you prepare your supply chain for unexpected disruptions.

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