The Covid pandemic and an unprecedented shortage of semiconductors has put risk management at the forefront of supply chain concerns. Recent history has only reinforced the notion that a costly, disruptive event can remain unnoticed in the supply chain until it’s too late.
Most recently, per- and polyfluoroalkyl substances (PFAS) have raised risk levels in electronics. It’s not just that these widely used chemicals are pollutants, explained Bindiya Vakil, CEO of risk management firm Resilinc. Litigation around PFAS use has skyrocketed to the point where their biggest supplier, 3M, is exiting the market by 2025.
A significant portion of that litigation is around damage to health, the environment, and companies that believed they were PFAS-free. “Companies who don’t even know where PFAS are in their supply chain are taking a huge risk,” said Vakil. “We’ve seen an increase in litigation taken against companies — compliance, legal actions, fines, labor violations – become more and more prevalent. We’ve seen almost a 70 percent increase between 2021 to 2022 on just legal actions related to human rights violations.”
In chip fabrication, PFAS are used for etching, testing, lithography, anti-reflective coatings and rinsing. European chemicals society ChemSec reports the electronics and semiconductor industry uses 4,400 tons of PFAS per year in the EU alone.
“When a factory has a PFAS issue, insurance ends up having to pay to settle claims and for the cleanup effort, which can be hundreds of millions of dollars, if not nowadays, billions of dollars,” said Vakil. 3M has agreed to pay up to $10.3 billion over 13 years to help municipalities test for and clean up toxic PFAS chemicals in public water supplies.
‘Hidden’ PFAS in the supply chain
Many companies are unaware of their exposure to PFAS, she explained, because they don’t have end-to-end visibility throughout their supply chain. In fact, industry association IPC found PFAS data in the electronics supply chain is scarce. IPC is looking to advocate against a blanket PFAS ban in the EU.
Additionally, manufacturers thoroughly vet their tier-1 suppliers but are largely unaware of the companies those suppliers source from.
Resilinc’s Bindiya Vakil
Supply chain mapping — gathering information about your suppliers, their suppliers, and other partners – helps companies mitigate the impact of unexpected events. This is especially critical when sources of supply are cut off.
“I think companies are becoming aware of [supply chain mapping] because of Covid, the Russia-Ukraine war, China lockdowns, bottlenecks in the Suez Canal and climate disasters,” said Vakil. “It’s been one thing after another. But it all comes down to you need to know what’s in your products, who is in your supply chain, and then you can go from there.”
The electronics supply chain will have difficulty finding PFAS substitutes, she added.
“PFAS have no direct substitutes for manufactures that use them,” Vakil said. “If you know products and parts that contain PFAS, [with mapping] you can start working on alternatives. If you have no choice but to use PFAS, then you have to start working with governments to make some exceptions for life-saving products.” PFAS are a health risk, but their use also saves lives, Vakil said.
Solving a sourcing crisis can be expensive. Critical disruptions such as Covid and the semiconductor shortage often led to businesses trying to second-source the products they use.
Supply chain mapping dashboard
“You can’t second source everything in the electronics industry,” said Vakil. “That’s not even an option. And if you do have the option, it can cost millions of dollars to maintain two sources. And many companies don’t have the volume needs to maintain two suppliers.”
Stocking up on inventory – another crisis-management strategy – typically involves an upfront investment and maintenance costs. Companies also run the risk of inventory depreciation if those products aren’t consumed.
Companies have become acutely aware of costs related to not having a critical part. The chip shortage cost the global automotive industry as much as $210 billion in revenue in 2021. “If you translate the parts that have a PFAS dependency to revenue, you might not be spending a lot on those parts,” Vakil explained. “But if you lose the supply of those parts, the business impact is considerably higher than the spend. Because every product that uses these parts with PFAS could be facing end-of-life, it’s a scary proposition.”
Mapping case study
Mapping has already proven to help during a pandemic. An electronics manufacturer used Resilinc to map most of its supply chain prior to the worst of the Covid outbreak The mapping criteria included:
- whether a supplier was the sole source of a part or material
- a co-developer of such a part
- the revenue impact of a delay or loss of parts or materials produced at specific sites.
Through mapping, the manufacturer knew precisely where more than 7,500 parts and materials were produced. The company generated a list of critical suppliers in Covid-disrupted areas and determined whether they were impacted and how seriously. Procurement staff concentrated on communicating with the most critical suppliers, especially those that were affected.
During a lockdown period in California, the manufacturer identified a particular site that was storing a significant quantity of parts and supplies. With the duration of the lockdown unknown, the supply chain team worked to ship 12 months’ worth of supplies from the California site to a site in another state with less stringent restrictions. The manufacturer avoided disruptions during the course of the pandemic.
“Best in class companies have early warning systems in place,” said Vakil. “They are mapping their supply chain back to the source and working collaboratively with suppliers. This can help you during a war. It can help you when a supplier has a fire. It can help you when you have an environmental shutdown like this because it’s an early warning.”
“So, when you think about holistically your resiliency strategy, you have to start with data,” she concluded. “And I think a lot of companies are now coming to the realization that, after three years of trying the usual strategies, those efforts are failing.”
