Small Pool of Sub-Tier Suppliers Threatens Stability of Supply Chain

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A recent study conducted by Resilinc Corp., a provider of supply chain resiliency solutions has determined that the world’s supply chains are facing a threat. Specifically, most suppliers are all depending on a relatively small set of sub tier suppliers, which means that if any of these face difficulties in production, the entire global supply chain could suffer as a result.

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Why A Small Set of Sub-Tier Suppliers is a Threat

The suppliers identified in the study depend on a network of manufacturing sites, most of which are owned by just four companies: ASE, Taiwan Semiconductor (TSMC), Amkor Technology, and United Microelectronics (UMC). About half of the sites owned by these four companies are all located in one of four countries: the U.S., Taiwan, China, and Japan. Henc

e, any threat to any one of these companies or the sites in which they produce is a threat to the entire global supply chain.

Even More Dangers With a Small Pool of Suppliers

To make matters even more complex, most of these sub-tier suppliers are buried so deeply within supply chains that the companies’ executives and management have no idea that the threats are even there. Additionally, many of these sites are situated in areas of the world that are highly susceptible to natural disasters. For example, the electronics indu

stry took a substantial hit foll

owing the 2011 earthquake and subsequent tsunami in Japan, which set back production of critical electronics components and gadgets significantly.

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How the Problem Was Discovered

Resilinc Corp. discovered these problems in a global survey. The company mapped data from hundreds of suppliers, including information from thousands of supplier sites in about 50 countries around the globe. The primary focus of the study was the high tech and automotive industries, however, many other industries depend on the same suppliers for their products. The problem is, by no means, isolated to these two industries.

How to Protect Your Supply Chain From the Dangers

A natural disaster of the magnitude of the Japanese earthquake and tsunami, if it hit in the right place, could jeopardize one or more of these four suppliers, thereby crippling a large sector of the global supply chain. How can suppliers protect themselves from the potential disaster if one or more of these sub-tier suppliers faces critical operational issues? Basically, the protection is just good supply chain management.

  • Know your suppliers
  • Hold suppliers accountable
  • Carefully choose carriers
  • Monitor global situations
  • Have a plan in place to address any potential threat
  • Manage inventory wisely
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Too many suppliers are unaware of their sub-tier supply chain beyond level two. This means that a disaster they knew about hits, yet they were unprepared because they had no idea the disaster threatened their supply chain. Map the supply chain all the way through. Don’t depend on level one or level two suppliers to secure the supply chain beyond.

Create contracts that demand accountability from the suppliers. If they know they’re liable for delivery issues or product rollout delays, they’ll be more vigilant about selecting sub-tier suppliers. Also, don’t overlook the issues of logistics. Whether your supplier sites are threatened by a disaster or not, if the supplies can’t get through, the result is the same.

Once you know where your supplier sites are, it’s a smaller matter to monitor those areas of the world for potential threats to the supply chain. But if there isn’t a plan in place to address the issues, your company is no better off for the knowledge. Also, keeping more inventory on hand can serve as a buffer between lags in the supply chain and your ability to make on time deliveries to your customers. [/show_to]

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