We live in a time of pandemic, inflation, and large nation-state competition both economic and military. One could argue that supply chains have not faced this much uncertainty in 50 years.
To prepare for a wide variety of outcomes, and to conduct a risk management exercise as part of our ISO 9001 requirements, North Star Sensors reviewed several different supply chain management frameworks. Our favorite one, the AURA (Active Usage of Resilience Assets) framework explained by Dmitry Ivanov in the The International Journal of Logistics Management emphasizes supply chain resilience from a variety of factors. Rather than more obtuse methods such as blindly increasing all reserve inventory, AURA encourages flexibility and contingency planning to allow companies to quickly adapt as conditions change.
Ivanov explains 5 key elements in the AURA framework:
Plan: Have a plan for different types of disruption, and design a network of suppliers that are adaptable and resilient to turmoil. For example having multiple sources is good, but would tensions in Taiwan affect all your current sources for a particular item? It might be worthwhile to have some sources that would not be disrupted if this happened. In general having some (but not all) sources that are located closer to your facility will help mitigate several types of disruptions.
Source: Have multiple suppliers, qualified backup suppliers, and qualified substitute components for increased flexibility. For example, during a major supply crisis in spring of 2020, North Star Sensors was able to quickly source Kynar insulated wire and quickly qualify it with our customer as a replacement for a Teflon insulated wire. This was able to relieve them of their desperate need for a particular thermistor for a pandemic related application. It is also important to consider which components might be most critical and more challenging to acquire and build up a strategic reserve stock of those components. However, excess inventory of less critical components and materials may not have as high of a risk adjusted return compared to other items.
Make: Emphasize flexibility in manufacturing processes that can quickly shift production between different components as needed. Does your production planning software, manufacturing equipment, and production process allow for rapid changes? Look for opportunities in swings in demand where some customers may have excess inventory of your product while others are running low. Both customers could benefit from a rapid shift in your production.
Deliver: Have multiple delivery options without too much reliance on a single point of failure. Could air travel and shipping be restricted? Could increased demand for cargo ships create a bottleneck? Are independent trucking services an option? Do you have backup warehouses to hold inventory? Consider some backup options for delivery in various conditions.
Return: What parts of your product can be recycled or repurposed? Can certain components be recovered and requalified for use during a supply crisis? This can be important to consider as part of an overall strategy.
North Star Sensors is using the AURA framework to design our supply chain and prepare for various scenarios of supply chain disruption. We are happy to work with our customers to aid with the resilience of their supply chain by being either a primary or alternate supplier, and working quickly to qualify alternative components.
Author: Tim Lavenuta