Are ‘just-in-time’ supply chain policies adversely impacting the electronics components industry?

The rise of just-in-time manufacturing has created a revolution across the supply chains of many industries, including electronics components.

Accurate forecasting and inventory control have enabled far-flung manufacturers to produce and deliver components, essentially on-demand, to a global network of suppliers and customers, while avoiding costly warehousing and other overhead expenses. However, these just-in-time policies have a downside and can leave many companies vulnerable to missed production targets and inability to meet customer demands.

Whenever there is an interruption in the supply chain (natural or manmade), the ‘just-in-time’ system is in jeopardy of breaking down and mission-critical industries must look elsewhere for highly desirable components. If a manufacturer has forecasted incorrectly and not manufactured enough of a product line, it could take 6-12 months before it can return to production after having retooled for other components.

Steve Culp of Accenture’s Risk Management practice stated in an October 2012 article in Forbes, “the fragility of global supply chains is related to emerging risks, but is also related to supply and network design strategies.”

He may have added that these seemingly well-thought out design strategies have proven to be easily impacted by interruptions. Take the example of a natural disaster. When the 2011 Japanese earthquake and tsunami struck, production delays rippled throughout the supply chain.

A report by the Congressional Research Service cited several examples of how the electronics industry was negatively impacted by this catastrophic event:

• Two Japanese plants accounting for 25% of the world’s supply of silicon wafers for computer chips were closed

• Texas Instruments had to close a factory in Japan (until September 2011) accounting for about 10% of its revenues

• Nihon Dempa Kogyo, the second-largest maker of quartz components (with a roughly 20% share of the global market), had to turn to overseas facilities to compensate for damage at its plant in northern Japan

In these cases, buyers seeking inventory have historically had little recourse beyond the unreliable broker channel or being forced to turn to the gray market. Turning to the gray market and purchasing a part from a source other than the original manufacturer or their authorized distributor exposes the buyer to not only sub-standard components but also increases their risk of purchasing counterfeit components.

According to the May 2012 report by the Senate Armed Service Committee titled “Inquiry Into Counterfeit Electronic Parts in the Department of Defense Supply Chain” an “overwhelmingly majority” of the more than one million counterfeit parts identified in an investigation of the DOD’s supply chain were sourced from a party other than the original manufacturer or their authorized distributor.

Franchised excess & obsolete (E&O) distributors with guaranteed product traceability are filling a gap in the lean supply chains resulting from just-in-time manufacturing. By holding excess and unsold factory stock and guaranteeing product traceability back to the manufacturer, these franchised E&O distributors offer buyers a credible and reliable source for product when just-in-time just doesn’t work.