Supply chain risk comes in many forms, but one of the most common and perhaps least considered is the ripples created by a leadership transition at a key supply chain partner. Whether caused by reorganizations, mergers, acquisitions or corporate scandals, these shifts may mean big changes at a partner company.
In retrospect, the past year has been quite active in terms of leadership among large global distributors, from the planned succession of Arrow COO Sean Kerins to CEO to the more recent exit of CEO and founder Robert Miller from Future Electronics amidst troubling accusations of misconduct. In December, Lindsley Ruth, CEO of RS Group, resigned for personal reasons.
In addition to creating headlines, these shifts may signal a strategic shift or at least uncertainty in the organization. Relationships are particularly important in electronics distribution as distributors partner with hundreds of suppliers and thousands of customers. While business performance is the main driver of these alliances, history and goodwill play a bigger role than many executives care to admit.
A growing trend
In a recent special report from Resilinc, which offers supply chain mapping, monitoring and resiliency solutions, the most common supply chain disruption is factory fires. At the same time, M&A activity and leadership transitions both made the upper half of the top 10 most common disruptions.
“Leadership changes continue to make our list of top 10 disruptions; for the past two years, it’s been in the top five. In fact, 2022 saw a 77 percent year-over-year increase in the number of leadership change alerts that went out to our customers,” said Resilinc’s CPO and co-founder Sumit Vakil. “The data shows that it is a growing — not a slowing — occurrence and that organizations must consider there’s a real possibility leadership changes could happen on their watch.”
When such a shift happens the change can cause a flurry of concern. “First, the obvious question to me is why the change?” said Jeff Ittel, executive vice president at distributor Flip Electronics. He poses other questions as well:
- Is there an issue with the company or individual?
- How will this impact my business?
- Who is taking over?
- Does my company already know this person and have a good relationship?
- Is there something going on here that precipitated the change that I should be concerned about?
Measuring the problem
In the wake of any change, OEMs should consider whether the issue was limited to a single individual who left for cause, or a challenge that points to a more business-wide issue. “If this was a known issue and allowed to continue, that is not really a business I would want to be associated with,” said Ittel.
In an unexpected change, the impact is likely to be greater. “If a clear successor was not appointed who could continue the partner’s operations unchanged, at least in the short term, the organization can expect its supplier to have degraded performance,” said Vakil.
Companies must always evaluate its partners’ actions with its brand in mind. “Much of the brand impact depends on the type of adverse news,” said Vakil. “Any negative news about a supplier related to environmental, social, and corporate governance (ESG) topics could have a negative impact on your brand. Government action could also have a negative impact, as could any impact on human life. A cybersecurity incident may be of concern if the supplier leaked your or your customers’ sensitive data. However, a supplier’s financial distress might not automatically impact your brand; it really comes down to what actually happened.”
In the end, organizations need to understand if the news of change is likely to impact the partner’s ability to perform. “Depending on the situation, the supplier may be unable to provide the goods and services you procure from it, resulting in a disruption to your business,” said Vakil. “Such disruptions could have an impact on your business, your relations with your customers, and your brand.”
Protecting the organization
By looking for the underlying causes and evaluating potential impact, organizations will be able to react accordingly. “For example, was the change because the leader was let go for ethical or legal violations, proven or alleged? If yes, then consider the nature of the violations and the possible impact to your brand,” said Vakil. “Was the change because the company was underperforming financially? If so, dig deeper into the company’s finances to get early insight into bankruptcy or force majeure.”
In addition, it’s good to consider ahead of time what challenges an unforeseen shift might cause. “I have always believed that you must have many touch points and relationships in companies to diminish the impact of one relationship that suddenly goes away,” Ittel cautions. “Also, companies must always be cognizant of having a backup plan.”
After the leadership change has occurred, OEMs should keep an eye on their supply chain. “A best practice for supply chain practitioners is to monitor any post-leadership transition changes closely to assess how suppliers on all tiers could be affected,” said Vakil.
In terms of whether to maintain an ongoing relationship, there’s no rule of thumb. “A nuanced, case-by-case approach is best,” explained Vakil. “Depending on the situation, it may or may not be necessary to reconsider a partnership. If a partner has demonstrated a history of negative issues, then certainly the partnership must be reconsidered. If the partner has been warned by you before, or has been asked to take corrective actions, but has not, or has reverted to past behavior, that should be another reason to reevaluate the relationship.”
A partners leadership change is a cause for alert, but not for panic. These shifts, which happen fairly often, require a careful evaluation of what the departure means and whether it should change the nature of the collaboration.