Sub-tier Suppliers May Conceal Supply Chain Risk

When it comes to supply chain risk, firms need to peel the onion past their tier-one suppliers to get the complete picture. According to a recent study by Resilinc Corp., leading global supply chains have become dependent on the same small group of sub-tier suppliers – concentrating risk and increasing the potential for supply chain disruptions.

Because this sub-tier supplier concentration is occurring deeper into global supply chains, many large organizations are not aware of the risks involved and are not adequately prepared to mitigate those risks.

The findings are based on a subset of its unique global supply chain mapping data from hundreds of suppliers across thousands of supplier sites spread over 50 countries. A detailed analysis of the data was performed in order to identify specific industry trends to assist clients in improving supply chain resiliency planning and sourcing tactics. While the study focused on the high-tech and automotive industries, many of the sub-tier suppliers analyzed also support other global industries.

The analysis found that global supply chain risk does tend to be concentrated in certain sub-tier suppliers and localities, posing increased disruption risk potential to the companies exposed to those dependencies. More than 50% of all sites analyzed are located in just four countries: Taiwan, China, the USA and Japan. The study further found that a high degree of supplier factory aggregation in a relatively small sub-set of regions creates global supply chain hotspots, and many of these hotspots for high-tech and automotive suppliers are in areas known for susceptibility to natural disasters.

For example, the massive earthquake and resulting tsunami and nuclear crisis in Japan in 2011 “highlighted the world’s dependence on electronic components made in the country,” as pointed out in The Wall Street Journal at that time.

This study underlines the critical need for deeper sub-tier dependency visibility into suppliers’ global footprint and site locations, sub-contractor and sub-tier supplier dependencies, site activities, part’s origin, alternate sites, recovery times, emergency contacts and business continuity planning (BCP) information.

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