Today we are facing widespread shortages, with lead times up to 52 weeks+, factory closures and all-around uncertainty.
In Q1, 2021 discussions have been focused on the concern of COVID 19 and the impact it will have on the Electronic Manufacturing world over the next year. However, when ‘normal’ live resumes, earlier supply chain challenges will still need to be confronted.
Here are some of the important challenges the industry will need to tackle to create a more diversified, responsive, and less risky supply chain.
Major Supply Chain Challenges
In 2020 OEMs and EMS companies experienced long lead times and shortages:
- Components were in unpredictable demand, leading to unpredictable lead times. This lead to growth by end of Q4, 2020.
- Electronics buyers faced concerns about new shutdowns and restricted activity early in 2021.
- Now in 2021 shortages are still severe and ‘standard’ lead times are deemed at 16-50 weeks.
- Prices are rapidly increasing due to transportation and material costs and there has been a continued acceleration in demand.
The just-in-time business models allow buyers to identify the perfect combination of medium lead time and the lowest possible price. There is potential for higher prices to be tolerated if it means meeting a production schedule with higher volume.
In normal times, buyers largely had the freedom to pick and choose their sources and can take advantage of a healthy logistics system, despite shortages, counterfeits, and tariffs.
Here are some of the challenges the electronic manufacturing world may face throughout 2021:
Shorter Product Lifecycles
Shorter lifecycles come about due to more rapid advances in technology and changes in consumer behaviour, which then create inventory management difficulties. Companies have to carry extra inventory to address customer demand, and turnover inventory more often. These increases carry costs and risks, particularly if a product fails.
Reliance on a centralized manufacturing base makes it difficult for companies to procure the components they need in the event of obsolescence or global supply chain disruptions.
Lack of Diversity
Although there are numerous primary and secondary electronics distributors, there are comparatively fewer major manufacturing centres for components.
Geopolitical instability in the form of a global pandemic and tariffs have helped make this lack of manufacturing diversity utterly obvious. Also, the just-in-time supply chain model relies on predictability; this model is slow to adapt to sudden shocks like widespread quarantines.
This partially explains shorter product lifecycles; every part of the supply chain and design chain has become commoditized, and companies keep pushing newer and more complex product variants to remain competitive.
This is great for the consumer and end customer as it drives competition, pushes down prices, and helps enable the features we all enjoy in consumer products.
However, it has forced OEMs to outsource just about everything except the most critical products. This proves to have indirectly impacted the rise of China as a manufacturing powerhouse and the centralization of manufacturing capacity in Asia.
Some of the benefits of moving your supply chain from Asia and bringing it closer to home:
More sources bring less risk: Spreading manufacturing capacity over a broader geographic region, and bringing it close to home, reduces the risk of regional disruptions, such as tariffs.
Easier to protect IP: Spreading different portions of a new product’s manufacture and assembly to different regions, or bringing it in-house, reduces the risk of IP theft. IP theft may also become easier to trace when the supply is more localized.
Traceability: When components move through fewer hands, there are fewer opportunities for counterfeiting. This also makes components and raw materials easier to trace.
The broader, long-lasting supply chain challenges aren’t going away anytime soon. It is important for the Electronic Manufacturing world to adapt to these changes, work together, and establish close, strong, and enduring relationships between the benefit of supplier and customer, the easier it will be to navigate through these immensely challenging times.