I had an opportunity to spend a couple of days earlier this week at the inaugural SCM World Leaders Forum in Dublin. While the event was conducted under a Chatham House Rule, I am at liberty to share some statistics from the content that we co-presented with Lloyd Kaplan from the market research firm iSuppli in a breakout session to explore what the supply chain industry can learn from the recent earthquake and tsunami in Japan.
Beyond the human tragedy, the impact to the global supply chain was significant due to the scale of the disruption and the concentration of key supply chain activities near the epicentre. The response and recovery time was further complicated since many of the component suppliers affected were multiple tiers removed from final product manufacturing. Unfortunately, many companies did not have visibility to this level of detail.
Lloyd led us through a fact-based discussion on some of these challenges in Japan and highlighted some additional geographic exposure that exists in other Asian geographies. I have summarized some of these statistics from iSuppli around the percentage concentration of global product supply to provide some context for readers of Value Unchained.
- 21% of Semiconductor Supply
- 49% of Optical Components
- 57% of Image Sensors
- 40% of Microcontrollers
- 33% of Display Drivers
- 60% of Silicon Wafers Key Materials and Chemicals
- 59% of DRAM
- 49% of Data Flash Memory
- 27% of Display Drivers
- 18% of Small/Medium LCD Panels
- 51% of Large LCD Panels
- 67% of Pure Play Foundry (Globally: 150 FablessSemiconductor Firms > $30M)
- 24% of Semiconductor Supply
- 37% of Display Drivers
- 58% of Small/Medium LCD Panels
- 34% of Large LCD Panels
- 80% of Mobile PCs
- 25% of Mobile Handsets
A disruption to supply from any of these locations – whether by natural disaster, geo-political instability or other cause – would have an enormous impact on the $1.77 trillion global electronic equipment market that manufactures 56% of its product in Asia.
This is not just a conversation about Asia, or just an electronics equipment conversation. Other industries have similar supply concentrations and many also have a large electronics component in their final product – automotive being a prime example.
So what can companies do to protect themselves from this exposure?
- Understand the level of exposure on a revenue basis, not just for a supplier, but also within geographic regions.
- Maintain a formal risk management plan that highlights these risks, addresses the actions to mitigate the risks and defines the process in case of a risk event.
- Recognize that in the event of a disruption, those that act most quickly are likely to secure most of the available contingent supply.
- Work proactively with key suppliers to ensure that you are seen as a priority partner in the case of a disruption.
- Look at the business case to understand the cost vs. risk trade off of maintaining an alternate supply source in a different geographic region.
Ultimately we may see some of the larger global customers of these products apply their own pressure to diversify some of this geographic concentration, but this is more likely to be a mitigation rather than a solution to the problem.
What additional best practices would you share in this area?
Originally posted by Lorcan Sheehan at http://blog.moduslink.com/bid/55912/What-Should-We-Learn-From-the-Tragic-Events-in-Japan-Where-are-the-Other-Areas-of-Geographic-Supply-Chain-Risk