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Re-cap: What is Supply Chain Resilience Anyway?
If you didn’t catch our Supply Chain Resilience Simplified article, Supply Chain Resilience (SCR) boils down to this: how well can your supply chain bounce back when Murphy’s Law strikes? Yes, this includes typhoons and tsunamis and fires, but in our world, resilience is really about mundane disasters like parts going obsolete or stock vanishing faster than free pizza at a meetup. Our first article focused on identifying risks. This article will focus on fixing those risks.
Are You At Risk?
We suggest that the simplest metric to assess SCR risk is Days of Supply (DOS). Days of Supply is just a measure of how many days of your production the current supply chain stock could sustain. Is there enough stock out there to last you a week? You’re hanging by a thread. Enough stock to last a quarter? You’re at big risk. If a production stoppage is something you can’t tolerate (or survive), that’s a disaster waiting to happen.
Even More Ways To Freak Out About SCR
DOS involves data and math. Math is great because it’s objective, but there are some other popular and more subjective ways to flag SCR risk:
- Sole Source Components: If only one manufacturer makes your part, it’s called sole-sourced, and yes, you should avoid it. But it happens to all of us and is very often unavoidable, so don’t beat yourself up about it. Do pay attention to the mitigations below.
- Distributor Monopoly: One distributor? It's a similar problem, not as risky as sole-source, but it still might be a problem you want to mitigate.
- Life Cycle Status: "Active" is good, "Not Recommended for New Design” is bad. "Obsolete" is very bad. Obsolete and no stock in distribution is OMG bad.
- Predictive Life Cycle Tools: SiliconExpert, Z2, or IHS (Accuris) offer crystal balls to predict obsolescence. Are they perfect? Nope. They’re better than nothing, but they cost a lot more than nothing.
These are all classic “best practice” ways supply chain professionals are taught to evaluate SCR, and you should know about them, too. Do you think sophisticated supply chain pros freak out and declare an emergency when a part goes obsolete, but there are 20 years of inventory in the supply chain? No, they don’t. That’s why we suggest DOS is really the most practical guide.
Sorry, We Need to Talk About Your AVL
Uh, what exactly is an AVL? It stands for Approved Vendor List (and can go by similar names). Think of it as your procurement cheat sheet—a list of parts and suppliers that your engineers have deemed suitable for use. Even if you’re relying on spreadsheets and reference designators (Ref Des) instead of fancy ERP systems and true internal part numbers (IPNs), understanding the basic idea of an AVL is still important. The key terms are:
- Manufacturer Part Number (MPN): The part number created by the component’s manufacturer. It’s what you see when you browse Mouser or Digi-Key. Think of it as the official SKU for that capacitor, resistor, microcontroller, etc.
- Internal Part Number (IPN): For those blessed with ERP systems or complex part-tracking processes, the IPN is your company’s internal identifier. It maps to one or more MPNs, giving procurement flexibility when sourcing. For example, your IPN might be "CAP123" and link to five different MPNs for capacitors that meet the same specs.
- Reference Designators (Ref Des): If you’re working off spreadsheets or board design software, Ref Des’s are often what you’re using instead of IPNs. These are placement references for parts on your PCB—like “C15” for a capacitor in a specific location. While not a true part number, these designators can help you track what MPNs can go where. However, they lack the flexibility and traceability that a formal AVL provides.
Your AVL, then, is a list of IPNs (or Ref Des’s) and their corresponding MPNs.
When you add MPNs to an IPN (or Ref Des), you expand your AVL. The broader your AVL, the deeper your pool of options when a supply issue arises.
If your AVL only includes one MPN and it becomes unavailable, you’re stuck. But if you’ve qualified five equivalent MPNs under your IPN or Ref Des, you have multiple fallback options.
The 3 Fixes For SCR Risk
The dream: a supply chain so deep it’s practically the Marianas Trench. Here’s how you can achieve that:
Fix #1 - Widen Your AVL (Approved Vendor List)
That AVL isn’t just a list; it’s a survival map. When you calculate DOS, use all the MPNs for each IPN. Adding to the AVL is the fastest, easiest, most common way to mitigate SCR risk.
- Start with Packaging Options: Reels, trays, and bulk are all common options embedded in MPNs. It is usually super easy to add MPNs with different packaging options to your AVL.
- Add “Better Than” Specs: Think wider temp ranges, tighter tolerances, or faster speeds. Yes, they might cost more, but remember, we're just adding options to the AVL, not making buy decisions. These are usually pretty easy for your engineers to approve.
- Find Alternates: Form, fit, and function equivalents (3Fs), usually from a different manufacturer. These are more difficult to approve because 3F equivalence is in the eye of the beholder.
Fix #2 - Deepen Your Inventory Pool
Yes, we know inventory is the four-letter word of lean manufacturing. But hear us out. At a 12% interest rate, money costs 1% per month. If you add $100,000 in inventory to mitigate SCR risk, the cost is $1000 per month. Think of it like insurance: Does this cost mitigate enough risk to justify the cost? The answer is probably yes.
- Buy More Parts: Sometimes, the simplest solution is the best. Classify components by cost and importance (A, B, C classification is common), and stock up where mitigating risk outweighs the cost.
- Vendor Managed Inventory (VMI): Let your distributor hold the stock on-site. It’s like your own little safety net. You typically don’t pay for the inventory until you consume it, very nice.
- Negotiate Terms: Distributors are often very flexible on payment terms, especially if you’re a lucrative account. Try to stretch payment terms—180 days is often on the table. This is a great way to hold inventory without laying out cash.
Fix #3 - Deepen Your Supply Chain Pool
- Pipeline Inventory: Lock in scheduled orders with distributors. Make sure the terms allow flexibility to reschedule if needed. Bonus points if you can negotiate ability to cancel.
- Bonded or Allocated Stock: Reserved inventory that’s invisible to the masses can be your secret weapon—just ensure the distributor can be trusted. If super important, ensure you can physically audit.
- Distributor Relationships: Know your players. Digi-Key and Mouser are great for quick delivery but not so great for advanced programs. Arrow and Avnet are perfect for the bespoke solutions you need to sleep at night.
Mastering the Game of Distributor Negotiations
Distributors are like poker players—they’re playing to maximize their return on capital. As Stephen Covey said, “Seek first to understand, then be understood”. Here’s how to understand Disty’s motivation:
- Show Them the Money: High-value customers get the red carpet. If you can, position yourself as one. Make yourself an attractive customer by presenting your spend and/or your future prospects. Have a good powerpoint you can present to them, update every ~6 months. Everybody loves a good story.
- Understand Their Priorities: Their gospel is market share in their franchised lines and minimizing liability. Show them you understand, help them win, and they’ll bend backward for you.
- Play the Long Game: Strong relationships pay dividends. Play the long game. Today’s concessions could mean tomorrow’s VIP treatment.
Stay Ready, So You Don’t Have to Get Ready
Supply chain resilience isn’t about eliminating risk (good luck with that); it’s about stacking the deck in your favor. By widening your AVL, deepening your inventory, and forging strong distributor partnerships, you can avoid most crises—or at least survive the ones you can’t avoid.
Still a bit overwhelmed? Breath. Even the best supply chains weren’t built in a day. Start small, stay smart, and remember that resilience is just a fancy word for managing risk. Let common sense be your guide. Now, go forth and conquer the supply chain jungle.