Risk Management Improvement in the Supply Chain of Speciality Fiber

Since August 2019, when the Trump administration officially announced a 100% tariff on $200 billion of Chinese imports, the trade, technology, and financial wars between the U.S. and China have intensified, causing a considerable impact on the global economy. In addition, the COVID-19 pandemic, which began in early 2020 and continues to this day, has declined the global economy, causing widespread paralysis in the international supply chain system and a significant increase in the prices of most commodities.

The specialty fiber industry is not at the center of the impact like 5G communications and the semiconductor industry, but it has been affected in a significant way. Specialty fiber production is also a member of the high-tech industry. The elements involved in the production process of specialty fibers are also more extensive, such as advanced manufacturing equipment, precision testing equipment, high-purity various raw materials, bulk industrial gases, and a harsh production environment. In one sentence, the production of specialty fibers cannot be separated from a stable and robust supply chain support.

In fact, in the past two years or so, the Specialty Fiber Business Unit has not been as calm as most people see it. The significant price increase of key raw materials, the sudden extension of the delivery date of important spare parts, the introduction of crucial equipment repeatedly obstructed by the U.S. government, and the shortage of materials during the epidemic, these difficulties are threatening the production and operation of Specialty Fiber Business Unit all the time. However, all these problems have been solved by the company’s calm response and calm handling.

1. Keen insight and rapid response to incoming risks

The occurrence and development of events are not untraceable, but there are certain intrinsic links and signs. Keen insight and rapid response to risk can identify signs of risk outbreaks and respond promptly. In Freud’s terms, insight is the transformation of the unconscious into the conscious. In early August 2021, the COVID-19 struck Wuhan again, with multiple outbreaks in the Jiangxia region. On the evening of Saturday, August 7, most of my colleagues were still resting at home, but the people’s government of Jiangxia District released the news of a partial blockade of Jiangxia District on its website at that time. More than an hour after the news was released, the Supply Chain, Specialty Fiber Business Unit, and Safety Operation and Maintenance Assurance Department held a meeting on the emergency line to ensure supply. The meeting confirmed the inventory and urgent demand, quickly made a demand plan for bulk gas in a special period and fed back to the gas suppliers in the blocked area for the first time. The supply to our company was ensured as a priority under the suppliers’ limited capacity and transportation capability, which successfully solved a possible crisis.

2. Accurate identification and comprehensive assessment of potential risks

The long-term, healthy and stable operation of an enterprise cannot only rely on temporary insight and timely response but also needs to identify risks well in advance, categorize and analyze various potential risks in the supply chain, and thus make a suitable risk assessment. In September 2020 and October 2021, the Specialty Fiber Business Unit and the Supply Chain Management Department have completed the identification of comprehensive risks of raw and auxiliary materials, fixed assets, spare parts, machine materials, and low-value consumables in the production process twice. It identifies high-risk materials, medium-risk materials, and low-risk materials, and different risk levels correspond to different safety stocks and countermeasures and replenish stocks quickly. It also sets up a strategy to adjust and update risk levels regularly or irregularly according to changes in the external environment.

3. Proactive control of potential risks

The procurement needs of the Specialty Fiber Business Unit have the following characteristics: 1) high technical requirements, most suppliers’ products are difficult to meet the demand; 2) rich categories, the Specialty Fiber Business Unit has a wide variety of procurement needs, but a relatively small amount of single needs at the same time; 3) most of the primary raw materials rely on imports, and at present, there is only one qualified supplier of many raw materials in the world. These three points together determine that specialty fiber is in a high-risk situation in the supply chain. For the specialty fiber supply chain, we have conducted a study to address these characteristics and have taken the following measures to curb the risk.

3.1 Develop new suppliers, expand multiple supply channels

Though this is simple, the workload is heavy. The introduction of each new supplier must go through the steps of supplier inspection, supplier evaluation, incoming sample inspection, trial production, product testing, customer verification, process document change, etc. Each step must strictly meet the national military standard quality system requirements. Each step must strictly meet the GJB quality system requirements, but the development of new suppliers should not be discouraged by the complexity of the process. For example, the Specialty Fiber Business Unit has been increasing the demand for auxiliary quartz tubes and rods every year as the production scale has been expanding and the product range has been enriched in the past few years. Meanwhile, it is difficult for a single supplier to achieve full coverage in capacity, technical specifications, and variety. Therefore, through the efforts of the company’s supply chain department in the past two years, the Specialty Fiber Business Unit has introduced a new supplier each year to meet the growth in demand of the business department while reducing the risk of interruptions in raw material supply.

3.2 Establish strategic partnerships

To achieve the desired strategic goals, the company needs to cooperate with its suppliers to form shared profits and risks. Therefore, establishing a close collaboration with suppliers becomes an effective initiative for risk prevention. Therefore, establishing a close partnership with suppliers becomes an effective initiative for risk prevention. As it is known, synthetic quartz tube is the key raw material for specialty fiber, and foreign suppliers have monopolized its supply due to high technical requirements. Although the tubes provided by foreign suppliers are of good quality, they also have disadvantages such as high price, long delivery time, and risk of stock breakage. This requires domestic suppliers to invest a lot of development costs and requires our company to verify them repeatedly. Without a strategic partnership between supply and demand, it is difficult to move forward with a research and development project for domestic synthetic quartz tubes. Since 2020, our company has established a close strategic partnership with Jiuzhi to promote domestic synthetic quartz pipes jointly. After more than a year of close cooperation, the project has passed the initial sample and small batch verification and is now in the state of batch trial production.

3.3 Daily management of risks

The production of the Specialty Fiber Business Unit is constantly exposed to many risks such as changes in customer demand, changes in the supply situation at the supplier’s end, changes in logistics, changes in the number of raw materials in the lineside warehouse and stock. Therefore, the management of risks must be consistent, and a practical risk prevention system must be established. After these two years of efforts, the Specialty Fiber Business Unit has established a safety stock verification and feedback mechanism with the process as the unit and the weekly cycle with the responsibility of the individual. The most fundamental daily risk management system has enabled specialty fiber not to have any case of normal production being affected by the lack of source problems in the past.

4. The impact of the enhancement of self-strength to reduce risk

The output of a single set of deflection-protected prefabricated rods in the Specialty Fiber Business Unit in 2018 was just over 80km, while the average output of a single set of deflection-protected prefabricated rods in 2021 has already exceeded 130km and even reached 156km at the highest. It is clear that with the improvement of technology, process capability, and management, the same amount of raw materials can be produced with nearly twice the output. In addition to the reduction of raw material consumption due to the improvement in various aspects, the actual technical index of our optical fiber is also improving year by year, and some indexes have reached the top level of the industry. This allows us to solve the technical obstacle problem and the general localization background but still have the bottom line to implement the localization replacement. These are potent moves to eliminate our over-reliance on the supply chain and reduce risk.

5. Conclusion

The risks are always there as we move forward. Here to borrow a phrase from Chairman Xi Jinping: we must put risk prevention in a prominent position and take precautions and preventions in advance.