By Nikita Saharia Chaturvedi
Calling the earthquake that hit southern Taiwan in February “a major wake-up call” for procurement professionals managing electronics supply chains, Bindiya Vakil, CEO at Resilinc, describes the repercussions and their affects in a new podcast at My Purchasing Center. She also offers some suggestions so procurement pros can be more prepared in the event another disaster strikes.
And it will. Whether that disaster is natural like the earthquake or man made—geopolitical or terrorist—it’s important for procurement to have a clear understanding of how their companies’ supply chains work and what to do to be ready for a disruption.
Measuring 6.4 on the Richter scale, the earthquake was the deadliest to hit the island since 1999. It also affected wafer fabrication companies and subcontractors in the region, with most reporting damage to the work in process wafer.
As electronics buyers know, the technology is complex and requires supreme precision. The most undetectable vibrations can have an impact. In the days following the quake, TSMC reported that 1% of its first-quarter shipments were affected. USC also communicated that its wafer in process was impacted. Clean up and line reconfiguration contributed to the delays.
“This is very constrained capacity,” Vakil says. “Some companies are still winging supply chain management. It’s risky. They are almost gambling with shareholder funds. Often they do not know which company makes which part for them.”
She explains that in the event of a disaster, sufficient supplies of critical components may not be available in the required quantities at the right time. “Companies don’t have basic information they need to manage this proactively, or even after it happens,” she says. “Even a small part is important if you want to ship your product.”
Most companies are still managing only the top 80% of their spend, and often don’t even have contact information readily available on the rest of their suppliers. On the other hand, leaders at supply chain resiliency are actively mapping their supply chains, knowing where parts originate, which suppliers are critical to the supply chain and how critical and why. They’re the first to respond and to recover.
“We believe this earthquake should be making supply chain practitioners shake with fear,” Vakil says. “The strategic importance of Taiwan to the global economy cannot be exaggerated. Just about every company you can think of uses electronic components and these products probably have at least one part that touches Taiwan….And given that we can’t ship a product with one part missing, we can quickly see how a disruption that strikes this region could paralyze the supply chain for months.”
Wafer fab production currently runs at excess of 90%, and manufacturers cannot create more capacity fast enough to meet demand. “Supply chain practitioners need to take steps to protect themselves,” Vakil says. “Not everyone will be equally impacted. Information is power. Those who have it own competitive advantage.”
Finally, in the podcast, Vakil offers these tips: “The first step in the right direction is to understand the nature of the threats and the potential impact. Knowing what your dependency is on these types of global hotspots is critical. Map your supply chain, understand it at a granular level, engage, collaborate with suppliers, and understand how you can work jointly to protect yourselves. Put a program in place that can notify you quickly about events like this. Look at business risk strategically, and better understand and address the threats.”
Listen to the My Purchasing Center podcast, Supply Chain Disruptions Should Have Procurement Shaking
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