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Supply Chain, Climate Change & Semiconductor Shortages: The Impact and Solutions
Published on: April 22, 2021 • Duration: 20 minutes
Happy Earth Day to our listeners. As a global hub for sustainable finance, we support the transition to a low-carbon economy and seek to raise awareness of core environmental issues.
In this episode, we welcome CEO and co-founder of Resilinc, Bindiya Vakil. Resilinc provides supply chain resilience and risk management intelligence and analytics to the enterprise.
In the last year, we have seen huge disruptions from an array of problems from natural disasters to COVID-19. Resilinc delivers organizational resiliency to provide solutions to these catastrophic events. Bindiya talks about how climate change is a huge consistent factor in supply chain and how companies need to mitigate these risks - What questions should investors be asking?
Host: Keesa Schreane
Guests - Bindiya Vakil, Co-Founder & CEO of Resilinc
Thank you for joining we're here today with Bindiya Vakil, CEO, and co-founder of Resilinc, a firm that delivers supply chain resiliency to the enterprise. Now, we're going to be talking about supply chain turbulence, the impacts of climate change on supply chain and possible solutions for companies around encountering these issues. But first let's talk about the semiconductor shortages and how this is impacting a number of sectors. Is there an end in sight and what is the likelihood, but in the future, a shortage of one component can impact several industries like we're seeing now?
First of all, Keesa thank you for having me here. And what a time in supply chain. It's not, if it's not semiconductor, it's plastics, it's all those things that we don't watch so closely. They are inexpensive. We are not expecting them to be this disrupted and they are. So speaking of your question on semiconductor shortages the industry has always been somewhat constrained for various reasons. One is it's highly complex manufacturing involved, very precise. The industry runs at more than 95% capacity in a normal business environment. On top of that, recently, what we've seen in the last five years in particular is this prevalence of IOT devices. Now we're seeing the pandemic accelerated the timeline for electric vehicles. We're seeing semi-conductors embedded in just about every product nowadays. Isn't it? I don't know. It's like what ha doesn't have it, you know, soap dispensers have sensors. So the thing is the prevalence of these devices, the technology associated with, you know, Moore's law means every two, two and a half years, a whole new brand of nanotechnology nano-sized semiconductors becomes available. These manufacturing locations have to be retooled for the latest and greatest technology. So it's just a very difficult what always catching up. Now, the question about, is there an end in sight, unfortunately, not for the next 12 months. And it is a question of not only have we seen demand has gone up significantly, but the industry has seen tremendous amount of supply chain disruptions. We have seen multiple major factory fire just last month. We saw Renaissance had a factory fire that damaged 23 pieces of equipment.
Before that it was multiple factory fires with uni-micron. We had the Taiwan water shortages due to drought conditions. So there's just this type of industry needs continuous water to operate the factory. So there's just a lot of different things going on. And unfortunately we're not seeing an end in sight. You know, the other thing you said, which was really interesting, what is the likelihood that something that affects one part can affect multiple industries by the way, this is human manatees, oldest problem. You, you almost have heard the saying for Wanda for Naila kingdom was lost. I mean, this is the thing, right? Small things can affect big, can have a massive outsized impact. That's what we're seeing when the president holds up this little check and says, oh my goodness, this little chip can cause our electronic supply chain to come apart. Our automotive supply chain to fall apart. You know, this, these devices are in medical devices, aerospace, defense products, it's in everything and not just semiconductors by the way, w after the hurricane season of last year, the Texas freeze and all of that, we're seeing massive disruptions on small things like plastics, resins, and polymers as well.
So we're talking about the disruptions and also my goodness, everything that we've seen over the past, just several weeks months, the water shortages in Taiwan, factory buyers demand is increasing. That leads me to wonder how is the business continuity planning process going to evolve? Are there certain things that we just can't prepare for? And more importantly, what should corporations consider and what should investors look for when thinking about what a robust post pandemic business continuity plan should look like?
In the past business continuity was this thing that you did. It was this person that was working on business continuity. Nobody really wanted to talk to this person because we always thought, well, you know, it's this black Swan event that might happen or maybe never happen in our lifetime. But nowadays we're seeing that the world around us has changed. We have taken our supply chains and stretch them to 2030 countries today. If I'm a high-tech industry product or a car company, my supply chain can span as many as a hundred countries. And so we are now experiencing black Swan events in all of these places on a near regular basis a factory fire. One of the events that wrestling tracks is factory fires, and we see 250 of them a year in one industry, right? You add that to hurricane season fires and droughts and winter storm, and all of these different, extreme weather types of events.
And all of a sudden we realized that business continuity we're the all in the business of assurance, you know, because without the assurance, there is no revenue without revenue. There is no profit, and we're all forced needing to protect risk and continuity. So business continuity is more and more recognized as being vital, whereas before it was you know lower in the list of priorities, cost savings, inventory management, lean, these types of initiatives would Trump business continuity nowadays, we definitely see companies pay a lot more attention. I think COVID was definitely an eye opener, 100% of the world. And I mean, 100% of the world was impacted due to supply chain disruption by COVID right. And we are still not out of those waters. I think we all understand how important risk and business continuity is. And also, I think, like I said earlier, it's the small things we don't pay attention to. We're very closely watching our high spend critical suppliers, but we can't ship a product with even though small part missing, right? Apple can't ship the iPhone. If the connector cable is not there. Heck if the packaging is not there. So every little thing is important to get a product out the Door.
But Bindiya, when we talk about this, you know, you discussed climate change earlier in some of these severe weather patterns that we're seeing is this just a fact of life is just, just the new normal in terms of supply chain. I mean, how can companies really thoughtfully mitigate those risks? What questions should investors be asking these companies to get clarity on the risks? Not just now, but even years to come because you know, climate change is here and we can expect it to, to definitely continue to bear this fruit. If you will, over the next few years, at least.
Climate change is a fact of life. It is because climate is affecting our supply chains, right? And as I said, if your supply chain spans 20, 30 countries, 50 countries, a drought in one place extreme weather event in another hurricane season, a winter condition or winter storm in yet another means there's this continuous round of disruptions year round, no matter what hemisphere you're in, no matter what geography you're in, depending on the type of requirements your factory has some, like I said, need uninterrupted water, others need uninterrupted, power, others need continuous to ocean or water transportation. So the supply chain needs different things that, that all need to be non-disruptive and continuously available. And the problem is that many companies don't ask questions. So as you said, what questions should an investor ask? Investors should be asking, Hey, do you know how many raw materials do you have? And do you know where they come from worldwide? Right. So a lot of times we know where we buy something from or where it ships from, but where does our supplier actually make this? And now I'll tell you in this high-tech industry, we almost always have information about our suppliers thinking, oh, this is a corporate office, but corporate offices almost never have manufacturing anymore. Suppliers use other subcontractors contract manufacturers all over the world. These are the places that are actually making our products and investors don't know this hex supply chain professionals sometimes don't know it about the parts that they manage. Where are these parts coming from and what are the inherent conditions in those regions? Because some of those sites are in hurricane regions. Other sites are in drought conditions. So we need to understand what is the nuance or what is the vulnerability, or what is the dependency in those regions and what type of climate conditions could affect our supply chain.
So, we're talking about these climate conditions, that impact supply chain. We also talk about key questions to ask, to just mention some really good ones. One of them is where is this ship from where where's this coming from? That can take us back and tie it into the infrastructure piece of this. When we look at the $2 trillion infrastructure commitment in the U S as well as the belt and road initiative from China, we clearly see a deep and committed government and private sector partnership, as it relates to infrastructure, especially Bendel, what strategic opportunities do you see around these partnerships that could have a positive impact or mitigate supply chain risk?
So there are multiple things here, right? I, I will touch on infrastructure and supply chain go hand in hand. You need a supply chain functions effectively because it relies essentially on the port infrastructure, the transportation infrastructure, the power and telecommunication infrastructure without infrastructure, you cannot have supply chain. And actually, this is one of the reasons why Africa as a continent has not been able to develop despite, okay, let me pull it back up. Despite the fact that a lot of the source materials that even China buys in order to power its factories actually originate in mines in Africa. So you pull it out of the earth, if you could process it within Africa itself, wouldn't that be a shorter supply chain, but Africa has not historically had that infrastructure, which is why China is actually far ahead of the us, in fact, in going into those African countries, building that infrastructure there and developing Africa as a very strategic source, but they're ahead of us.
And because we're so hung up on sourcing out of China, and we have forgotten that we need to actually understand what is the supply chain or to earth that we're not being attention to Africa. And I think we, we have a huge opportunity right now in the aftermath of what we saw with Suez canal that this eight extensive dependence that we have on Asia and the continuous focus that we have on Asia, we're missing those strategic importance of countries like Africa con the coal continent of Africa, the entire continent of south America. There are, these are the last unexplored frontiers, I would say, where there's a tremendous opportunity to have strong government public partnerships with these regions develop these as sources that are good alternative sources to some of the Asian Asia dependencies that we have as well as create new markets.:
I mean, if you think about what supply chains have the power to do supply chains can lift millions, hundreds of millions of people out of poverty. And if we just look at Africa as a source of charity versus really just rethink how we think of Africa as a location that is very strategic from a supply chain standpoint we have the opportunity in this point from here on now to design that supply chain of the future and the world is a whiteboard and completely empty. Let's go back and strategically look at it. And this just does. Doesn't just happen with public sector looking at it by itself. It doesn't private sector by itself can do it. But I feel like with the government with president Biden's supply chain recent white house executive order, where they specifically have asked companies to do an assessment of their supply chain, understand where products are coming from. I think this is a really good time to have this dialogue about how can countries band together and strategically look at different parts of the world and, and develop supply chains and infrastructure there.
So, and let's talk a little bit more about that deep dive and understanding the supply chain, how concerned should companies and investors be about gaining insight beyond tier one suppliers? How deep should that investigation go and looking at the supply chain of India?
You know, everything happens in that self-tier supply chain. In fact, we have been monitoring and keeping an eye on our tier one suppliers, but I will tell you, 80% of the time that our tier one supplier is disrupted it's because something happened with one of their suppliers, 80% of their time consistently. We think we're chasing a ship supplier issue, or supplier can decommitted on a purchase order or something, but we never ask why did that happen? It happened because one of their suppliers had a factory buyer or was somehow disrupted in a flood or hurricane or something. So I'll understanding where the supply chain is, what those dependencies are, what those second tier sites are that our tier one suppliers are relying on. This can give us as much as to read a four month early warning read, or four months early warning to shape our destiny on whether we live or die.
I think it's a, it's a must. It's an absolute must. Like I said, we're in the business of assurance and continuity means revenue means profit without continuity, no revenue, no profit companies live or die with supply chain disruption. So companies should be extremely concerned. They need to have programs to map the supply chain beyond the tier one, and really understand what are those local sites that affect and shape their destiny and do something about it. Now, there is no such thing as risk-free, so we're not seeing just by mapping your supply chain, you will become risk free. No, but you will be able to protect ahead of time, your highest, most critical revenue products, because you are now better informed and more forewarn than reacting within when it wants. It's already too late.
Wow. It's such great insight. So first of all, heard from you about how the pandemic accelerated timelines in terms of Wendy's materials were needed. Semiconductors. We talked about earlier, were embedded in so many products. And so that aided and abetted to the situation that we're seeing now and supply chains can span as many as 100 countries. So those black Swan events in these places can occur regularly. And I love the quote, very tweetable moment in the business. We're in the business of assurance. And so you need that assurance to get to revenue. Some key questions you, that you brought up that investors should ask, how many raw materials do you have? Where do those materials come from? Where do, where, where are the suppliers who make the materials? Where are they shipped all critical questions and questions that really can tie back into the supply chain. Because as you said, without infrastructure, you can't have a supply chain. And finally understanding those second tier sites can really give a company early warning and really can protect them in so many ways. It is clear Bindiya, why you were supply and demand chain executives, first supply chain, woman of the year, because you're so insightful. And thank you so much for your time on this.
Thank you so much for having me. It's a pleasure.
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About this series
The world is changing, and so is the financial sector.
As modern society goes through significant changes, the role of business and investment starts to evolve. It’s not something that’s just about to happen: it’s the reality surrounding us.
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