The Tech Sector’s Top 10 Supply Chain Challenges

The Tech Sector’s Top 10 Supply Chain Challenges

These trends are putting tremendous pressure on tech sector supply chains to sense change and respond immediately.

Luis Eraña

As the technology industry continuously evolves, several trends are becoming apparent. Businesses in touch with these trends and prepared to address them, will likely be better positioned to succeed.

The more mature a company’s supply chain and risk management processes are, the better the company fares when a disruption occurs, the research shows: 44 percent of companies with mature processes suffered a 3 percent or more decline in their revenue, compared to 57 percent with immature processes.

  1. Supply chain risk management

    In the technology sector, supply chain risk management cannot be considered, developed and managed in an ad hoc manner. The risks are too high. Tech leaders build collaborative, agile supply chains, capable of rapid yet cost-effective adaptation. They achieve this agility through practices that include:

    • a variable vs. fixed supply chain network;
    • collaboration and risk sharing across supply chain partners;
    • extended supply chain information visibility and sharing;
    • sense-and-respond mechanisms for spotting anomalies and changes;
    • segmented supply chain management risk mechanisms tied to value at risk;
    • orchestrated supply chains, with partners aligned on key value dimensions.

    These strategies pay off, according to a study by MIT and PwC. The more mature a company’s supply chain and risk management processes are, the better the company fares when a disruption occurs, the research shows: 44 percent of companies with mature processes suffered a 3 percent or more decline in their revenue, compared to 57 percent with immature processes.

  2. Shrinking product lifecycles and big bang disruptors

    Product lifecycles in the tech sector have shrunk to months, but were once measured in years. Consumers are hyper-tuned to expect the next new thing. With every new product introduction, the value of incumbent competitor products’ drops like a stone. This pattern is further complicated by the so-called “big bang disruptor” paradigm, whereby a revolutionary new product enters the market and sales explode. The reason: these products are better and cheaper than existing products from the moment of their creation. For incumbents, that spells trouble. [1]

  3. Relentless cost pressure

    The pressure to reduce costs in the tech supply chain is relentless due to numerous competitive and product-related reasons. For one, product convergence in the PC, ultramobiles (including tablets) and mobile phone segments means that differentiation “will soon be based primarily on price instead of devices’ orientation to specific tasks.”[2]

    Secondly, new generations of products often carry radical price reductions, effectively destroying the status quo economic profile on which supply chain operations were based.

    Thirdly, tech company start-ups are entering the worldwide market in greater numbers than ever before, forcing new dynamics into the competitive landscape.

  4. Tightening regulatory requirements

    Technology companies face an oncoming flood of new compliance regulations as countries around the world grapple with how to control the enormous problem of e-waste. Tech firms will be responsible for what happens to their products at end of life, and must observe regulations regarding material collection, recovery, recycling and destruction/disposal. These recycling and extended producer responsibility rules vary by state, country and region. This injects tremendous complexity into the compliance picture, and creates challenges for organizations trying to implement e-waste management systems.

  5. The Internet of Things

    The Internet of Things (IoT) – i.e., machines that talk to each other – is poised for explosive growth. According to Gartner, the IoT will reach 26 billion installed units by 2020. This is a 30-fold increase compared to 0.9 billion just five years ago. The IoT will impact supply chains in a number of important ways, Gartner believes. As devices become more self-aware and communicate with their ecosystems, for example, they will be able to describe their own availability, capacity and health – as well as that of the products and materials with which they are interacting. Companies can apply this technology, Gartner concludes, to solve or mitigate supply chain challenges.

  6. Escalating security threats

    As tech supply chains become more intertwined, penetrate new markets, and depend more heavily on the IoT connecting and interacting with the traditional Internet, the threat of cyber-security breaches and malicious threats grows. Given the sheer volume and breadth of data the cyber supply chain carries, and the fact that the information supply chain is the lifeblood of the physical supply chain, concerns about security breaches are very real. At the same time, because tech products are essential components of such things as critical infrastructure, power grids, defense systems and financial systems, concerns about the "injection of viruses" into high-tech hardware products during their journey from supply procurement, through manufacturing to customer delivery are escalating.

  7. The rise of the machines

    Machines and robots are getting cheaper, more flexible and more autonomous, expanding their usefulness in both manufacturing and the supply chain. Autonomous machines and robots take care of themselves. Their ability to sense the environment in more complex ways is improving, enabling them to interpret and act on sound, touch, smell, temperature, terrain, altitude and other inputs. With declining costs, improving capability and high levels of flexibility, the new robots and autonomous machines can replace humans in performing mundane, physically demanding or unattractive jobs in the distribution environment.

  8. The visibility holy grail

    Accurate, timely visibility into inventory—both inside and outside of the enterprise—is an increasingly strategic differentiator for tech companies grappling to move products before they become discounted, marginalized or obsolete. Being able to see across multiple levels of a supply chain, detect changing conditions early on, and respond to them, gives a company the power to react more quickly and even anticipate changes that could impact sales and profitability. This is the visibility holy grail, and few companies have achieved it. In the warp-speed business of high tech, simply gaining visibility will not be sufficient in immediate years to come. Companies will need to layer robust intelligence engines into this visibility, to optimize channel inventory on the fly to assure the right amount of inventory for every SKU and raw material, at every location, at all times, across the extended supply chain.

  9. Shift to variable, “plug-and-play” networks

    The ability to respond, redirect resources, and shift to alternate strategies and tactics quickly is a hallmark of tech sector leaders. In support of this strategy, these firms are shifting to variable, plug-and-play supply chain networks not based on economies of scale, but based on “contingent scale.” Contingent scale is the ability of the enterprise to rapidly size its assets and services up or down, as required by extreme demand fluctuations.

  10. Multi-channel everything

    The Internet has destroyed the old business paradigm of discrete sales channels. Consumers and even businesses now expect to be able to order and receive goods any way they choose. Frequently, this choice involves blending formerly separate channels—such as order online and pick up in store. This shift to multi-channel forward and reverse flows adds tremendous complexity to any supply chain operation, and the tech sector with its heavy concentration on consumer sales, is at the forefront of grappling with this challenge.

Luis Humberto Erana is president, technology and service logistics - Americas at DHL Supply Chain (www.dhl.com)

[1] Accenture. Big Bang Disruption: When Better is Also Cheaper, 2013 p. 1.
[2] Gartner Inc., Worldwide IT Spending Forecast 2014, http://www.gartner.com/newsroom/id/2643919, January 6, 2014.

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