In the wake of the systemic shocks brought on by COVID-19-related shortages, every major consumer of integrated circuit chips has been compelled to re-evaluate their procurement strategies, to look beyond minimising costs. We’ve previously discussed the shift from a “Just-In-Time” to a “Just-In-Case” inventory approach as manufacturers reassess the optimal level of chips to keep in stock. Under the “Just-In-Time” model, manufacturers minimized inventory to free up working capital. However, the “Just-In-Case” approach has underscored the value of maintaining a surplus as a protective measure against sudden supply disruptions. Having extra stock is in fact a good investment of that capital, as it provides a protective buffer against sudden shortages.
Diversifying Supplier Choices
The reconsideration extends to supplier selection as well. Previously, price and availability were the sole deciding factors. Now, industry leaders like Bosch are consciously diversifying their supply chains to include smaller manufacturers. This strategic move aims to insulate the supply chain, ensuring that issues with one major supplier don’t grind operations to a halt. In this context, paying a slightly higher price is increasingly viewed as a prudent investment in resilience.
The Rise of Long-Term Contracts
Companies are also demonstrating a greater willingness to engage in long-term contracts with suppliers. Although this approach restricts their ability to scout for lower prices, it enhances supply chain stability and fosters stronger relationships with suppliers.
Incorporating Suppliers into Risk Management
In addition to these changes, companies are integrating their suppliers into their overall risk management strategies. For instance, Samsung conducts regular audits and performance evaluations of its suppliers, scrutinizing every facet of their operations to ensure quality and reliability.
The Importance of Cooperation and Data Sharing
Cooperation and data sharing have taken on heightened significance in modern supply chain management. For example, our organization has been a member of ERAI for 25 years, recognizing the critical role that collaboration plays in safeguarding our customers. ERAI serves as an invaluable resource, monitoring, investigating, and reporting on issues that impact the global electronics components supply chain.
In summary, the landscape of supply chain management is undergoing a significant transformation. Companies are now focusing on a more holistic view of value, where the lowest price is no longer the only measure of a good deal. In an increasingly uncertain world, resilience, relationships, and proactive risk management are becoming key elements of a sound procurement strategy.