There are some factors that we absolutely must consider when constructing or redesigning a supply chain which ranges from product characteristics; to major cost drivers; to the future trend of some macrofactors (see illustration). In addition, we owe it to ourselves to continuously revisit the decision factors that might have a higher degree of volatility. These could include but are not limited to the following:
- Transport costs (due to oil/fuel fluctuations)
- Currency changes (buy/sell in different currencies can cause problems)
- Inventory costs (increase due to market volatility/write-offs increase due to more frequent product launches/increased product variations available)
- Importation costs (importation and taxation may change)
- Risk (insurance/disruptions/quality losses)
- Manufacturing costs (due to increased labor costs/or decreased productivity)
The starting point is to ask ourselves a few higher-level questions before we get into the lower-level data to judge even the need to re-examine decisions already taken:
- Is our original decision still the right choice? How do we know?
- When we set out on this decision to outsource to a particular place, what were the critical success factors behind the decision? Did we identify these and measure our progress?
- When was the last time we reviewed our supply chain design?
Based on the above, additional key elements for review are:
- Costs: Were assumptions made that low manufacturing cost would remain the same? Was there anticipation that costs would rise eventually? What is the cost/benefit decision point? How much are transportation costs considered? What expectations did we have in regards to inventory levels? And are those realized?
- Risk Considerations: Was the risk profile of the supply chain considered as a variable when the decision(s) was made? Has global risk increased to a level that would have meant outsourcing wouldn’t have been chosen if it were at present levels when the decision was initially made? What is the associated cost to mitigate the risks?
- Competitive Factors: Do we maintain any first-mover advantage? Are we still competing on cost or are we now competing more on other supply chain attributes such as reliability, responsiveness or agility?
- Voice of the Customer: Have customer needs changed in such a way that the current supply chain design is no longer appropriate? Do we know what supply chain design requirements are necessary to meet our current and future customer needs?
The impacts of this shift go beyond the potential regaining of the loss of our competitive edge. The more fact-based and robust these decisions require of our supply chain teams—the more we must place emphasis on the processes, technologies and people skills to achieve this capability and turn it into a core competency that will offer a true competitive differentiation.
Douglas Kent is Global Vice President of Avnet Velocity (of Avnet Inc.), which serves as a liaison for the electronics industry and supports the supply chain functions of Avnet Electronics Marketing (EM) and Avnet Technology Solutions (TS).