Executive Briefings

Often It's Your Supplier's Supplier That You Have to Worry About

The vast majority of respondents (nearly 80 percent) do not manage risks beyond their immediate first tier suppliers, says a ChainLink Research survey. Instead, they rely on their immediate suppliers to manage those risks. The Japanese tsunami highlighted the risks in that approach and the importance of being aware of the impacts across multiple tiers of the supply chain.

Many companies were impacted not by their immediate suppliers, but by their suppliers' suppliers or by secondary effects of the tsunami. For example, Japan makes over 60 percent of the world's supply of silicon wafers used in manufacturing semiconductors. A worldwide shortage is predicted due to many wafer plants being shut down. If you are a high-tech, automotive or medical device manufacturer, you don't buy from these sources directly, but will very likely be impacted. In another example, 70 percent of the world's supply of aluminum electrolytic capacitors comes from Japan. These are used in a wide variety of applications such as filtering power supply outputs, motor start capacitors, audio applications, energy discharge, photoflash, and strobe applications. Industrial manufacturers, camera and cell phone makers, and many others may be impacted by those shortages, even though they do not buy those capacitors directly.

It is risky to rely solely on your suppliers to deal with those shortages. Often times, suppliers are reluctant to be forthcoming with bad news, as they scramble and hold out hope that they will find alternative sources. By the time their situation becomes fully clear, it is too late. Having an understanding of the complete supply chain can be advantageous. You are in a position to know where there is capacity and constraint, and which suppliers are in a position to secure that limited output. This gives you a clearer picture of the true risks for your immediate suppliers, as well as an understanding of which alternate sources might have access to the limited supply. Then you can pursue those specific alternate sources more vigorously.

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The vast majority of respondents (nearly 80 percent) do not manage risks beyond their immediate first tier suppliers, says a ChainLink Research survey. Instead, they rely on their immediate suppliers to manage those risks. The Japanese tsunami highlighted the risks in that approach and the importance of being aware of the impacts across multiple tiers of the supply chain.

Many companies were impacted not by their immediate suppliers, but by their suppliers' suppliers or by secondary effects of the tsunami. For example, Japan makes over 60 percent of the world's supply of silicon wafers used in manufacturing semiconductors. A worldwide shortage is predicted due to many wafer plants being shut down. If you are a high-tech, automotive or medical device manufacturer, you don't buy from these sources directly, but will very likely be impacted. In another example, 70 percent of the world's supply of aluminum electrolytic capacitors comes from Japan. These are used in a wide variety of applications such as filtering power supply outputs, motor start capacitors, audio applications, energy discharge, photoflash, and strobe applications. Industrial manufacturers, camera and cell phone makers, and many others may be impacted by those shortages, even though they do not buy those capacitors directly.

It is risky to rely solely on your suppliers to deal with those shortages. Often times, suppliers are reluctant to be forthcoming with bad news, as they scramble and hold out hope that they will find alternative sources. By the time their situation becomes fully clear, it is too late. Having an understanding of the complete supply chain can be advantageous. You are in a position to know where there is capacity and constraint, and which suppliers are in a position to secure that limited output. This gives you a clearer picture of the true risks for your immediate suppliers, as well as an understanding of which alternate sources might have access to the limited supply. Then you can pursue those specific alternate sources more vigorously.

Read Full Article