Understanding the pressure on high-tech supply chains

In 2011, a series of floods devastated Thailand and damaged numerous factories there critical to the global hard disk drive (HDD) industry. At the time, just one facility in Bang Pa-In produced one-quarter of the world’s sliders, a critical component that carries the HDD drive head as it floats over the disk surface to perform read and write operations. The same year, an 8.9 Richter Scale magnitude earthquake in Japan disrupted the semiconductor supply chain.

The overall scope of these natural disasters was worse than many manufacturers had anticipated, underscoring both the inherent dangers of highly concentrated supply chains and the need for more extensive risk management plans within high-tech manufacturing. The particular challenges in semiconductor and disk drive production are well-established and difficult to solve without the right partner and processes:

Pressured margins

While there are numerous players throughout both the semiconductor and HDD supply chains, in reality there is immense pricing pressure on them from just a handful of well-known global firms downstream. Accordingly, upstream suppliers have their work cut out for them in keeping pace with these changing demands, while their downstream partners must contend with difficulties stemming from the need to balance cost and risk. Sourcing from a specific supplier might help contain costs but could introduce risk if any slowdown occurs or disaster strikes.


Extended supply chains

The catastrophes in Thailand and Japan revealed the vast extent of many high-tech supply chains. Top-tier HDD manufacturers alone consume tens of millions of parts daily from hundreds of suppliers dispersed across the globe, a setup that creates many possible points of failure. Meanwhile, semiconductor makers have to oversee foundries and subcontractors. Offshoring, tech parks (i.e., sites like ones in Thailand and Taiwan housing multiple suppliers in the same industry) and just-in-time manufacturing have stretched supply chains and greatly increased their complexity from a risk management perspective.

Order and demand management

A McKinsey assessment of the major semiconductor manufacturers found enormous variance (up to 40 percent in some cases) in key performance indicators such as on-time order delivery and 3-month demand forecasting. The same report estimated that a significant increase in supply chain performance could boost revenue up to 10 percent and reduce inventory and working capital by as much as 30 percent.

Instant communications

The internet allows for virtually instant updates about supply chain disruptions and product shortages. The rapid spread of news can trigger panic buying and possibly reputational damage, too, if issues about labor or environmental conditions come to light. Manufacturers have to account for these risks beforehand and know that the slightest mishap could send ripples throughout their supply chains and operations.

Environmental issues

Ongoing changes in climate could put more pressure on high-tech supply chains as rises in sea levels precipitate more flooding and droughts raise the costs of production. Semiconductors, especially, require tremendous amounts of water during fabrication. Although state-of-the-art water reclamation and recycling capabilities are now standard in the semiconductor supply chain, there is still the possibility of a climate change-induced shortage requiring water to be trucked in – a costly alternative that could be felt downstream.

Addressing these challenges head on with an SCM partner

At Inspirage, we offer a product risk management solution that leverages top-notch supply chain management technologies to produce tangible improvements across your business. We can help with demand planning, service lifecycle management, reverse logistics and much more. Visit our high tech page to learn more, or contact our team directly.

Tom Grosskopf

Tom Grosskopf | Key Contributor

Tom Grosskopf is a Strategic Account Director responsible in our High Tech vertical, driving further growth in a leading sector for Inspirage. Leveraging over 30 years of experience working and consulting in the high tech industry, Tom brings a broad and multidimensional perspective to our clients. Tom spent nine years at Oracle, the last four as Vice President of consulting services responsible for the high tech sector for strategic accounts.