Supply Chains for High-Tech Companies: Unique Challenges and Solutions

The Blume Global Team | April 03, 2019

The world’s most cutting-edge companies like Apple, Google, HP, Samsung, Intel, Cisco or Microsoft are technological leaders. Consumer devices like computers, smartphones and tablets or business hardware like routers, switches and servers are central to their competitiveness and economic power. The high-tech industry thrives on transformation and efficiency—creating world-leading products, then manufacturing and distributing them quickly and easily.

Of course, behind every innovation is a vast, complex, international, high-tech supply chain. For supply chain teams in technology companies, managing raw materials, parts and finished products through the high-tech sourcing and manufacturing process is a massive challenge.

Technology supply chain managers are under significant pressure to manage costs and minimize time to market—all while optimizing logistics and maximizing ROI, especially with increasing budgets for ever-growing infrastructure, development and research efforts.

Innovation isn’t slowing down, and high-tech businesses must streamline supply chains to decrease speed to market, keep costs under control and manage the production of complex devices. In this article, we explore some of the common challenges facing the high-tech supply chain, together with the steps you can take.

Challenge #1: Commodity Prices Drastically Impact Raw Material Costs

The high-tech industry is reliant on minerals, metals and other commodities to manufacture components and parts for high-tech devices. Increases in costs for gold, silver, lithium, silicon and other materials directly translate to lower profit margins if these expenses are not controlled or represented in end pricing.

Technology supply chain managers must understand the supply and demand of commodities, together with external factors that can influence pricing. They need to lock in futures contract pricing to guarantee commodity costs for raw materials, and ensure availability at all times.

Solution #1: Understand Likely Price Movements and Supply Challenges for High-Tech Commodities

Supply chain managers in the purchasing area need a good understanding of the internal, environmental and other influences that can impact commodity pricing and availability.

  • Get robust pricing agreements in place with raw material extraction companies to limit price variations.
  • Use AI and machine learning to forecast likely future demand for essential materials and commodities and build this into your ordering as early as possible.
  • Understand how external factors like tariffs, global demand, over supply, economic change or geopolitical uncertainty can introduce risk into the supply chain and get contingencies in place.

Challenge #2: Complexity of Sourcing and Routing High-Tech Parts Delays Technology Manufacturing

Technology hardware, whether that’s smartphones, servers, TVs or specialist devices are often made up of hundreds or thousands of parts. Every part must be manufactured and then transported to the right place at the right time for further assembly.

Managing these exceptionally complex technology supply chains requires enormous skill, accurate, timely information and trustworthy logistics providers. Even a small delay to one component can stop an entire production run, delaying that ever-precious speed to market.

Innovation and obsolescence are the watchwords of the technology industry, so any manufacturing delay can mean out-of-stock inventories, loss of revenue and unhappy retailers. High-tech supply chain managers must work across the global manufacturing ecosystem to streamline the manufacture and distribution of technology components.

Solution #2: Streamline Technology Manufacture and Routing Through the Supply Chain

The global complexity of the technology supply chain makes this a challenging area:

  • Supply chain managers should use a central supply chain platform that integrates with inventory management and order tracking systems from suppliers, manufacturers and distributors in the technology supply chain. This makes it easier to understand any bottlenecks, order shortages or other issues with parts manufacture and distribution.
  • Take advantage of machine learning and AI modeling to determine likely future demand for high-tech parts. Work with product developers to break down exactly what components are needed and build forecast models so you can set appropriate inventory levels with manufacturers.
  • Use IoT devices to track where technology materials and parts are at all times. This can help with route optimization and production line scheduling.

Challenge #3: Slow Speed to Market Damages Consumer Expectations and Competitiveness

Individual and business consumers are primed to want the next big thing in technology. Whether that’s the latest iPhone, a faster datacenter, more efficient appliances or better cloud technology, timing and speed to market are key. The hype train drives technology companies to continually reduce their end-to-end product lifecycles, from research and inception through to manufacturing and upgrades.

This translates into every part of the high-tech supply chain, where speed is critical to success. Fail to meet consumer expectations, and everyone moves onto the next big product, that’s coming from your competitor.

Solution #3: Enhance Speed to Market for New Technology Products

Rather than focus on two or three “big ticket” efficiency improvements, technology supply chain managers are more likely to get benefits from numerous small changes in supply, manufacturing and transport.

  • Get early insight into the research and development process so you know what products are coming down the pipeline.
  • Engage with suppliers and manufacturers as soon as possible to ensure you get on their schedule for raw material requirements and customized components.
  • Talk to the marketing department to understand promotion schedules for new items and build deliveries around that.
  • Get strong service level agreements in place that focus on speed and quality.
  • Create contingencies in the supply chain so you have backup suppliers and manufacturers.
  • Carry out risk identification and management exercises to understand factors that could impact technology supplies or production.

Challenge #4: Inefficient Transport Leads to Issues With Distribution and Stock Levels

Transportation and logistics make an enormous difference to the speed and efficiency of a high-tech supply chain. If you need to meet a specific deadline for launching a product to market, you don’t want those products delayed on an ocean-going container ship for six weeks.

The leading technology companies understand this:

  • Apple makes extensive use of air freight to transport its high-value consumer products, based on sales figures around the world.
  • Samsung works with over 2,500 worldwide suppliers and uses different logistics and transport options with each, with a strong focus on environmental responsibility, workers’ rights and safety.
  • Cisco’s combined focus on configure-to-order (CTO) production models, freight savings and intelligent scheduling has led to faster expansion into new markets, a shorter time to market and an improved customer and partner experience.

Solution #4: Optimize Transportation Logistics to Support Retail Need and Inventory Levels

Logistics is a vital competitive differentiator to getting products to the right retailer at the right time.

  • Use AI and machine learning to optimize supply chain routing and work with logistics providers who can rapidly adapt to changing distribution needs.
  • Utilize multiple modes of transport in the logistics network to enable rapid transit of valuable or essential parts and products via air freight or other high-speed networks.
  • Take advantage of railroad networks for low-cost distribution of high-tech products over large distances.

Challenge #5: Poor Security Can Increase Technology and IP Theft and Compromise High-Tech Products

This challenge comes in two versions. On the one hand, high-tech products are very attractive to thieves, so it’s vital to protect them wherever they are in the supply chain. On the other hand, it’s vital that the products themselves have robust security. The ever-present risk of data breaches, identity theft and compromised information can cause significant financial damage.

Solution #5: Implement Robust Security Throughout the Technology Supply Chain

Supply chain managers can influence both of these security concerns:

  • Use highly secure, trusted logistics providers to handle the transport of parts and products and tag goods with IoT devices for accurate tracking and tamper proofing.
  • Carry out a complete risk assessment of security throughout the supply chain to identify and mitigate potential vulnerabilities or opportunities to compromise or steal technology.
  • Implement regular audits to ensure suppliers and manufacturers are implementing best practice security processes.
  • Work with product development and business security to ensure that demands for product security are integrated into the supply chain ordering and manufacturer agreement processes.

Other Challenges in the High-Tech Supply Chain

The challenges we’ve explored above are some of the biggest concerns for technology supply chain managers, but there are plenty of other areas that need to be assessed and managed. They include:

  • The growing demand in omni-channel and ways to purchase
  • The integration of downloadable content and over-the-air updates to products
  • Potential technology recalls due to poor quality management of substandard materials and parts
  • Accurate understanding of costs and profit margins throughout the supply chain
  • Advances in manufacturing and the introduction of robotics and AI into the technology supply chain
  • Tightening regulatory requirements, especially around privacy and data sharing
  • Disruptive technology startups and competition from established tech businesses

It’s vital for technology supply chain stakeholders to be aware of all the challenges that could impact global, high-tech supply and manufacturing. Proper planning and forecasting, combined with greater visibility and security will all help to bring products to market faster, meet consumer demand and increase profits.

Blume Global helps high-tech companies manage their global supply chain including visibility, data sharing, tracking, supply and demand management, fleet optimization and much more.

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