SCRM in the electronic industry – an industry recommendation

A few days ago, the ZVEI, the German Electrical and Electronic Manufacturers’ Association, published an industry recommendation how to set-up and run Supply Chain Management in the electronic industry. The recommendation ‘Guideline Supply Chain Management in Electronics Manufacturing’ is the result of an initiative started by two divisions of ZVEI – the Electronic Components and Systems Division and PCB and Electronics Systems Division. The reason that these two division started the initiative is simple: The members of those two division are located upstream in electronic supply chains – and therefore they face stronger consequences of the well-know bull-whip effect (volatility of demand, out of stock situations etc.). Thus, these companies are highly interested in establishing SCM in their supply chains to reduce the bullwhip effect and to decrease the level of risk.

The document addresses different topics of SCM: It starts with a general introduction into Supply Chain Management, then discusses robust supply chains, focuses on external framework conditions, and gives recommendations for education and training in SCM. From an SCRM perspective, chapter 2 (‘Robust Supply Chains with High Responsiveness and Flexibility’) is of special importance.

Figure 1: List of possible risks for different process types. Source: ZVEI - German Electrical and Electronic Manufacturers’ Association: Guideline Supply Chain Management in Electronics Manufacturing, Frankfurt/Main 2014.

The ZVEI starts with defining robustness in supply chains: “This means that a robust supply chain must be as reliable and immune as possible to external influences and risks, possibly intercepting errors when they occur to minimise their impact on downstream processes.” The document then lists different risks that might occur in various areas of the supply chain. The underlying concept is the well-established SCOR model, the ‘Supply Chain Operations Reference’ model, which is a set of standard processes on different levels, which can be used to model, document, and analyze supply chains. Following the SCOR approach is one of the strengths of the document. By applying SCOR to the SCRM process means to build a solid structure for risk management. Figure 1 shows the result of the generic risk identification using SCOR model – a table with potential risks, that are assigned to the 5 different types of processes used in the SCOR approach. (The ‘return’ process was omitted intentionally, since the group found it played a minor role.)

After identifying and listing various risks in the electronic supply chain, the document focuses on measures to safeguard against risks. Again, when suggesting and discussing different approaches, the document follows the SCOR model. Those measure contain suggestions that are typical to SCM, such as supplier management and the use of SCM IT applications. On the other hand, risk management specific approaches are suggested, such as FMEA and the simulation of supply chain scenarios. It also recommends the use of a risk classification matrix.

Figure 2: Questionnaire. Source: ZVEI - German Electrical and Electronic Manufacturers’ Association: Guideline Supply Chain Management in Electronics Manufacturing, Frankfurt/Main 2014.

The paper not only lists risks and possible counteractions, but also addresses the organizational implementation of risk management. Within a few pages, the paper gives valuable hints for setting up a risk management in supply chains, and also focuses on communication in risk management. Additionally, the document provides a questionnaire that helps to ask the right questions in SCRM in the electronic industry (see Figure 2).


We Germans would probably ask: Aren't there any weaknesses of the paper? And then we would answer: Yes, there are some. But: I don't want to focus them - because I would like to look at the recommendations' strengths. So: Is the paper helpful? Definitely! One of the strengths is to give an overview over SCM and SCRM in a specific industry. Of course, this leads to some general suggestions and recommendations (as mentioned above), but those recommendations still focus on the electronic industry. (And if you ever worked on industry standards, you for sure know how difficult it is to find a compromise even for definging single termns.) Another strength is to link SCRM activities to an existing, structured approach – the SCOR model. The SCOR approach thus builds the framework for identifying, evaluating and managing supply chain risks. By following SCOR the paper shows a strong methodic structure, that can be followed easily!

The document ‘Guideline Supply Chain Management in Electronics Manufacturing’ can be downloaded from the ZVEI’s homepage: http://www.zvei.org/en/association/publications/Pages/Guideline-Supply-Chain-Management.aspx.

DHL's Swiss knife revisited

More than a month ago, I discussed DHL's risk management approach that resulted in DHL Resilience360. I concluded that the approach seemed to be interesting, but the available information was shallow.

I tried to get in contact with DHL to find out more about this tool, and - after a first unsuccessful attempt - I was invited to either visit DHL in Troisdorf or to follow a live presentation via WebEx. To save resources, I chose the latter - and eventually we set a date for the presentation.

To start with my overall impression: The tool and its capabilities are impressing. There might be aspects, where you could argue, that the methodic foundation might be weak. But, from my point of view, the tool offers much more than I dared to expect.

Figure 1: Visualization of a global supply chain, including risk assessment of the supply chain elements

Strategic level: supply chain visualization and risk assessment of the (static) supply chain

The application provides two general functionalities: On one hand, it supports the supply chain configuration on a strategic level. By a geo-referenced visualization of the whole supply chain, i.e. all own suppliers' and customers' locations, and infrastructure nodes plus all relations between those nodes, it provides a worldwide overview  (see figure 1 above). From a conceptual point of view, the visualization of a supply chain is nothing extraordinary. However, the practical implementation of a worldwide visualization is at least a first step to create some visibility. And - visibility is one of the key words to implement an effective SCRM. The transportation links also reflect the actual route of a shipment, so again, the data is geo-referenced.

Figure 2: Detailed risk assessment of a node within a supply chain ('risk scores')

Each node and each link has additional risk-related information. Those information can be collected by semi-automatically sending out questionaires with risk-relevant questions to the operators of the facilities. The answers are then used as input into a risk assessment, so that a number of different risk factors can be evaluated focusing on exposure, impact, and severity. The algorithm that calculates the risk values has not been discussed, so that might be an open issue. Nevertheless, the values offer the risk manager a first idea where 'hot spots' in terms of high risks might exist - and why those locations might be hot spots (see Figure 2). They also indicate, where to develop measures to manage risks.

Figure 3: Country-focused risk evaluation

The risk assessment on the strategic level can be additionally supported by a country-focused risk evaluation (see figure 3). Those information are based on a number of different sources. They do not only reflect the current risk situations for different factors such as terrorism, corruption, or cargo theft, but also give the risk manager an idea regarding the risk trends for the aforementioned factors. Of course, this feature of the application does not generate a 'WOW!'. But - it can effectively support the supply chain (risk) manager because it is part of an integrated system.

Figure 4: Risk monitoring using geo-coded near-time incident data

Operational level: Incident monitoring

 

The second functionality of Resilience360 is an almost real-time (thus 'near-time') risk monitoring. It is a 'near-time' monitoring, because the (currently five) providers of risk-related incident information, such es data on strikes, terror attacks, environmental changes, delays, etc., first validate the data and their sources, so the information can be confirmed. The risk news are also geographically referenced, so they can be displayed on the map in the system (see figure 4).

Figure 5: Matching incident data and supply chain characteristics to identify affected supply chain elements

To realize, how those incidents might influence the supply chain, the user can define some kind of 'influence area' for the incident. By matching the geo-referenced 'influence area' with the also geo-referenced supply chain, the supply chain risk manager can immediately identify affected parts of the supply chain (see figure 5). Thus, this functionally can effectively support the operational risk monitoring even of complex supply chains.

The functionality explained above, i.e. the strategic supply chain mapping including risk-related information and the operational risk monitoring of supply chains and their processes, are - I must admit - impressive. The online and browser-based application can be used almost intuitively. The functionality seems to incorporate a lot of practical ideas and methodological aspects.

Data availibility is a crucial point

 

Aren' t there any limitations? Yes, there are. It's the required data that defines if the application is helpful or not. The incident data is provided by external sources - so that should not be a problem of availability. It should also not be a problem to get location-related data of own facilities. But, it is getting more and more difficult the more a company tries to integrate supplier and customer data. And the data availability will be worse when it comes to integrating tier-2 or tier-3 suppliers (or customers of customers). This is not only true for the static data, i.e. locations, relations, and risk data, which might be difficult to compile. The situation get worse when dynamic data such as actual shipment data is required for the operational risk monitoring. Again, the data acquisition might be easy when the company has full responsibilities for shipments, and thus has the shipment data. (Alternatively, if DHL is the LSP for the company, DHL should be able to provide all detailed shipment data.) But, if some third party is responsible for planning and control of shipments, it seems unlikely to get hold of the data. This is, of course, not a problem of the tool, but it is a crucial point for the applicability of DHL Resilience360.

As mentioned above, the calculation of the risk values for exposure, impact and security is - at least to me - a black box, so an evaluation of the methodology is not possible.

Wish list of supply chain risk managers

 

Risk managers might have some points on their wish list. This could be the assessment of follow-up risks, based on a current incident somewhere in a supply chain. If the tool would be able not only to identify those parts of the supply chain that are directly affected but could also calculate or estimate the consequences for later processes in the supply chain, it would be of great help for a consequences analysis and for prioritizing counteractions. Another wish could be a stronger decision support. Currently, the application works as management information system (MIS), that provides data for a supply chain (risk) manager. However, generating alternatives, such as chosing alternative routings, or shifting production from one location to another, is a task carried out by the manager. If the system could simulate alternative routings, or the consequences of changing production and delivery plans, the manager could focus on evaluating those alternatives and then choose the optimal alternative. This would shift the application to a decision support system (DSS).

Summary

Beside those aspects mentioned above, the DHL's Resilience360 is a very strong and - as it seems - highly sophicasted tool that support strategic and operational tasks in supply chain risk management. It provides much more functionality than other tools available. However, the question of gathering enough and high-quality (i.e. detailed) data from all supply chain partners is a crucial point for the tool.

(All screenshots by courtesy of Deutsche Post AG.)