Safeguarding supply: Mitigating the risk of disruption in a global supply chain
When devastation strikes, supply chains suffer
In April 2016, a series of earthquakes struck Kumamoto in Japan, including a massive 7.0 magnitude mainshock. The tragic earthquakes resulted in loss of life, injury and significant damage to infrastructure and buildings. One of the buildings devastated by the earthquake was the factory responsible for producing the vast majority of the image sensor chips used by the world’s cameras. Though the factory was back to 100% capacity in November of the same year, the short-term disruption in the supply chain was significant.
While natural disasters of the scale of the Kumamoto earthquakes are thankfully rare, it represents an example of the critical knock-on effects of supply chain disruption through any cause.
There are numerous factors that can disrupt a supply chain and cause shortages of critical components. Exposure is increased in an ever-more globalized economy, where components come from suppliers in many different countries. Whether natural disasters, geopolitical tension or simply shortage of raw material, it is the responsibility of product manufacturers to put a supply chain in place that can ensure reliable supply through any level of disruption.
A supply chain decades in the making
Building a robust global supply chain strategy isn’t the work of a moment. Rather they are the result of diligent research and planning. For Axis, this is a process that has lasted for more than 25 years.
As Ulrika Magnusson, Global Supply Chain Director at Axis explains, the work involved in creating and managing a robust supply chain is never complete: “As we innovate and create new products and solutions that meet changing customer demands, so our supply chain needs to reflect and support that innovation. This requires extremely close liaison between our research and development and supply chain teams: the greater foresight we have over products in development, the better-placed we are to source the component suppliers required.”
Given the rigorous criteria and quality standards Axis applies to every link in its supply chain, the job of finding and appointing new suppliers takes time. The Axis Supplier Evaluation Framework, Supplier Code of Conduct – which all suppliers have to sign - and ongoing supplier audits ensure that all suppliers are screened in respect of the environment, working conditions and human rights.
As Magnusson continues, “Such rigor in selecting and evaluating suppliers is absolutely essential to having confidence that they meet our exacting standards. Indeed, we view our suppliers’ supply chains as part of our own. This is why we’ll audit aspects such as disposal of waste produced within the process of component manufacture and where raw material come from, to ensure that no conflict minerals find their way into our products. Where we find suppliers that meet most but not all of our selection criteria, we’ll often work with them to improve those aspects that are currently holding them back. This is often a worthwhile investment, as opposed to starting the sourcing again.”
Geographic location of suppliers is also an important consideration, for a number of reasons. With an increasingly volatile climate, physical supply is of greater risk of disruption through severe weather events. Therefore, sourcing suppliers closer to the point of manufacture is useful, and has additional environmental benefits of reduced transportation.
Second sourcing is key
One fundamental approach to ensuring continuity of supply is second sourcing. As the name suggests, this simply means using more than a single supplier for any specific component. Wherever possible, Axis will find more than a single supplier for components in its products. Where that isn’t possible, Axis will ensure that either it or the supplier carries a buffer stock to secure supply can be maintained even if the chain is being disrupted. This not only protects supply in the case of disruption for any reason, but also in the case of sudden spikes in industry or customer demand.
Per Ädelroth, Vice President, Operations & Chief Supply Chain Officer at Axis, explains: “If there’s a sudden increase in demand for one specific product or category, that can quickly create a bottleneck in supply. Component manufacturers clearly need time to ramp up increased capacity, and existing stocks can be quickly exhausted. Such spikes in demand can be difficult to forecast: there have definitely been occasions when strong customer demand in all regions globally have created pinch-points in supply. It might be regarded as a nice problem to have, but it’s obviously an issue we need to be well-placed to address to keep partners and customers happy.”
Ultimate control through collaborative manufacture
Axis products are created through collaborative manufacturing, where Axis works in close partnership with a small number of manufacturers in North America, Europe and Asia. Nerzesa Dzinovic, Manager for Sourcing Electronics and Manufacturing at Axis, explains how collaborative the manufacturing process is: “As with our component suppliers, we have rigorous evaluation criteria for our manufacturing partners. And product manufacture is a true partnership: Axis employees work alongside those from the manufacturer, and we define and control the production process and protocols. Real-time data from the manufacturing plant also allows us to identify any potential issues early.”
Again, the location of manufacture and also the product Configuration and Logistic Centers (CLCs) are chosen to be close to the markets they serve, reducing the impact of transportation and risk of disruption. Manufacture of popular, high-value and critical products is also split across more than one factory to ensure supply should production at one be disturbed.
Navigating global politics
It’s a reality that politics and relationships between nations states – both positive and negative - have an impact on manufacturers of any products. It’s a frequently changing environment: two states that have previously enjoyed a positive trading relationship may suddenly fall into economic conflict, with an associated impact on companies selling into those markets.
As Magnusson, explains, geopolitical tensions highlight the need to look at multiple suppliers of product components: “As a Swedish company, we’re fortunate that our country doesn’t fall into trade conflict with other nations very often! However, our products contain components from numerous countries globally, and frequently international trade agreements – such as the U.S. Trade Agreements Act – define designated and non-designated countries from which products or their components can be sourced. Again, therefore, it’s critical that we have suppliers of the same component in geographically diverse locations.”
Not all components are equal
As part of its sourcing process, Axis has a classification scheme for components in its products which relates to their importance to the end product, and which impacts the sourcing – and second sourcing – of supply. Dzinovic again, “Nuts and bolts are pretty standard and easily replaced, but with a component such as an image sensor – around which the end product is essentially completely designed – a lack of availability due to any reason can be critical.”
Being in complete control of the entire product design allows us to respond quickly to serious issues.
Which is why natural disasters, such as the Kumamoto earthquakes, were such a learning experience for all involved. It also demonstrates the value of the ‘Axis One’ approach, as explained by Ädelroth: “Being in complete control of the entire product design and manufacturing process – from R&D to configuration – allows us to respond quickly to serious issues. For example, if we need to redesign a key part of a product to allow for a change in critical component sourcing, we can do that seamlessly.”
Maintaining supply today, with one eye on the future
The security industry is fast-moving, with technological innovations allowing for the continual development of new, more advanced products. The Axis supply chain team works in close collaboration with the company’s Research and Development function to understand the future product roadmap and ensure that component suppliers are being sourced to support it.
Ädelroth concludes: “Ultimately, Axis is a company focused on meeting the needs of our customers. On the one hand that demands reliable supply of current products, while also designing the products that will deliver against future needs. Sourcing suppliers that can support the pace of product development, within an ever-changing environment, while rigorously adhering to our own standards and those which govern international trade and manufacturing, is essential in delivering the company’s vision.”