In July, Nissan had to commence a three-day shutdown at four of its manufacturing plants because of a supply shortage of key chip components from Hitachi. According to EE Times, “Nissan Motor Co. announced here that it is suspending production lines at four of the company’s five domestic assembly plants for three days starting Wednesday, July 14th, because ECUs supplied by Hitachi Ltd. won’t arrive in time … Hitachi’s delay in delivering engine control units (ECUs) also illustrates the market reality that many chips continue to be produced and distributed on an allocation basis.” Hitachi’s production shortage was the result of a supply shortage due to one of its own chip suppliers. Even though the electronic components and chips market is somewhat unique in the market — and is more prone to allocation and capacity issues, even during a period of questionable recovery than other spend areas — there are numerous, nearly universal supply risk lessons (and questions) to take away from this incident:
- Procurement organizations must look at supply risk beyond the potential financial failure of their top suppliers. Supply risk involves numerous types of risks and even financial risk management requires looking beyond the largest set of organizations in your supply base. Do your supply risk programs account for risk elements beyond financial difficulties at top tier suppliers? If not, they should.
- Supply risk is, by design, multi-tier in nature. Given this, why do 99% of supply risk efforts focus almost exclusively on monitoring tier one suppliers?
- Allocation markets aren’t just for boom times. In certain situations outside of a strong economic recovery or growth period in the global economy, demand/supply balances won’t be in alignment. Will you be ready if your suppliers are put on allocation? How do you know that you’re in a better position relative to your competitors in allocation markets?
Are you looking for practical ways of tackling supply risk and other supplier management challenges? If so, you can download your free copy of the just-released Compass Seriess research report on the subject: Leveraging Supplier Management Platforms for Multiple Goals: Risk Reduction, Supplier Diversity and CSR.
The research paper is part of our Next Level Supplier Management Compass Series 2010 research focused on the theme of Technology, Practices and Approaches for Cost Reduction, Risk Improvement and Supplier Development. If you’re curious about the subject, we’d also encourage you download another Compass report from earlier this year: The Intersection of Analytics and Supply Chain Risk Management — Using Intelligence to Drive Early Intervention.
As you can tell, this is a topic we’re serious about covering in extensive detail on Spend Matters. If there’s another angle you’d like to see our coverage take on supply risk, please don’t hesitate to drop a line: jbusch (at) spendmatters (dot) com