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February 12, 2013

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Who's at the Heart of the Supply Chain?

Ebnonline.com

Sometimes all you've got to do to solve an intractable problem or resolve a riddle is simply change your methodology or just ask the question in a different way. One such problem with significant implications for everyone in the electronics industry centers on the issue of ownership or control of the supply chain.

The pertinent questions people have asked over decades include: Whose supply chain is it; who controls it; who wields the most power; and who has the ultimate responsibility for it when things go wrong or work smoothly?

You'll recognize some of the answers I've received to some of these questions. Many observers and experienced supply chain executives have told me they believe the OEM is ultimately responsible for the supply chain. Others say responsibility for the supply chain is shared by all the players, including OEMs, EMS providers, and component manufacturers. Few people have mentioned distributors as the ones ultimately responsible for the supply chain -- in fact, I can't recall a single person having ever mentioned distributors.

Despite the multiple answers I've received, it's been generally agreed that these questions are important. The group that can lay claim to ownership or control of the supply chain can harvest the benefits of pricing leverage, receive favorable terms, and generally mold the system in its own favor. On the other hand, when nobody assumes responsibility for anything or when we dump it all on a single group, chaos typically results. Assigning responsibilities for the hitch-free running of the supply chain is important because what's at stake is so enormous.

The transactions involved for the entire industry run annually into hundreds of billions of dollars -- starting at the conceptual design stage through components and vendor selection, contract manufacturing, production, parts delivery either through distribution or direct-to-producer, logistics, product delivery, and after-sales warranty fulfillment.

Web of connections

The touches along these interconnected services are so numerous that it's surprising the system works as well as it does. When everything works smoothly, we push the question of ownership of the supply chain back to the recesses of our collective minds. However, it pops up savagely when the system breaks down, as it has so often done. That's when we search for someone to blame, and often everyone spins out the responsibility to a different group. Even the idea of collective responsibility falls flat at times like this.

Are we in this dilemma because we've been asking the wrong questions? I believe so. Debating supply chain ownership or control of a trillion-dollar industry populated by tens of thousands of companies is a misguided exercise. The interests, investments, and opportunities in the supply chain are too many and too critical to the individual players to be assigned to a single group. No matter how selfless OEMs and EMS providers are, they cannot equitably protect the interests of all the other stakeholders and still deliver on their fiduciary responsibilities to shareholders.

The correct question we should be asking is: Who's at the heart of the electronics supply chain?

In other words, which of the industry participants is playing the critical role of traffic director, sending parts and services in the right direction and ensuring that collisions do not occur or that, when they do, the problem is quickly resolved?

To ask in a different way: Which group of players does the industry turn to in normal and abnormal times? Who is -- in more ways than others -- touching, representing, and advocating for the other players? And who has saddled themselves with the task of ensuring the supply chain operates smoothly?

Distributors. That's who.

Chain oil

Since the 1990s, mega distributors like Arrow and Avnet have moved to the heart of the supply chain and widely expanded their offerings. They aren't pulling strings so much as lubricating the system for all players -- OEMs, EMS providers, component suppliers, logistics companies, systems integrators, software vendors, and even smaller distributors.

This wasn't an altruistic shift. They had to move beyond the traditional component distribution offerings. Without value-added services, distributors were doomed to become bit players. So they've evolved and extended services to cover most of the industry -- in the case of Avnet to even offering supply chain management (SCM) and business process outsourcing (BPO) offerings to OEMs and value-added resellers.

The leading distributors aren't claiming control, ownership, or overall responsibility for the supply chain. They are just providing the services that keep the system operating smoothly. By stepping into its core and touching all players with services and offerings that keep the system efficient, distributors have rendered the question of control or ownership of the supply chain irrelevant.

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