Supply chain resilience has become a hot concern within the electronics industry in recent months due to several factors.
For component manufacturers, particularly OEMs and EMS companies, the ongoing chip shortage has brought unprecedented disruptions to the supply chain. According to analysts, the disruptions trickled down to most industries, with delivery times for new chip orders stretching to 2023. On top of that, the Covid-19 pandemic wreaked havoc globally, with many manufacturers essentially forced to shut down operations for sustained periods.
For more information about the ways to achieve supply chain resilience amid disruption, read this article.
There is no magic wand that can wipe away supply chain headwinds. But companies can take various actions to build supply chain resiliency and limit disruptions.
Supply chain resilience focuses on preparing your supply chain operations to predict, weather, and adapt to unexpected events like Covid-19 and the components crisis. It is how quickly your supply chain can adjust to the disruptive changes that negatively affect its performance.
For example, in response to the global chip shortage, TSMC has committed to ramping up chip production by investing $100 billion in a new hi-tech foundry. The aim is to build high resilience in the face of growing demand by providing additional surge capacity to ensure business continuity.
TSMC certainly isn’t the only chipmaker investing billions to build resilience across its supply chain. Intel announced last year that it plans to spend $20 billion on two new chip plants in Arizona. Samsung also revealed recently that 90% of its 2021 annual capital expenditure was spent on chip manufacturing.
According to Gartner, semiconductor companies worldwide spent $146 billion building new production capacity and on research and development. However, long lead times are required to build capacity and significantly increase output. When companies reach peak capacity - which tends to take three to four years - demand may have stabilised at lower levels, creating oversupply risks.
So, what can companies do in the short term to build a more resilient supply chain? In the electronics industry, supply chain resilience involves having quality relationships with suppliers, enhancing collaboration with various stakeholders, and creating redundancies to minimise disruptions.
Understanding the vulnerabilities in your supply chain is vital to build resilience. Vulnerabilities can appear anywhere in the supply chain, from relying too much on one or a few suppliers to not digitalising your supply chain or not creating visibility across the supply chain.
Redundancies aim to reduce the number of risk events that disrupt the supply chains in the first place. Companies should hold extra inventory to avoid stockouts. Having a buffer of safety stock is the easiest way to build a more resilient supply chain. It allows you to continue to serve clients while dealing with supply bottlenecks in the background. In addition, you should always have the scope to increase production if needed, but not so much that it affects productivity and profitability.
Organisations should consider using multiple partners and suppliers simultaneously — even in good times. That way, you can establish solid relationships with multiple vendors. If one fails or suddenly becomes unreliable, the other is there to pick up the slack quickly. By spreading your sourcing across various suppliers, you'll experience minimal disruption and ensure resilience.
If possible, consider nearshoring to ensure you have localised solutions within your supply network. Being overly dependent on one geographic region makes your supply chain more vulnerable to disruption. Working with local firms can also help build trust with customers and other stakeholders in your supply chain.
A higher level of supplier collaboration is needed to build a more resilient and connected supply chain. After all, a chain is only as strong as its weakest link. If you lack communication between you and your suppliers, you leave an unacceptable chunk of your supply chain open to significant risk. Work with your suppliers or distributors to agree on expectations, whether around lead times for products or improving the supply chain.
Better collaboration across the business network between the OEMs, EMS providers, and distributors is critical to build supply chain resilience. Collaborating with other players helps secure your supply chain by making it easier to share data and stay updated on capabilities within the industry. Strong relationships also pay additional dividends in the form of shorter replenishment cycles for crucial components amid shortages.
The electronic components industry is highly cyclical, running through a peak-to-trough cycle now and again. Upturns occur during periods of high demand, which in turn cause supply shortages, leading to unprecedented disruptions. However, that is often followed by downturns and inventory build-up, which further exacerbates the disruptions. Whenever disruptions do occur, they can cause significant risks to your business operations and profitability.
We explain too in this article, how to reduce the risk of supply chain.
AIRENC is a peer-to-peer transaction platform that facilitates seamless collaboration and information sharing among supply chain partners, thus helping organisations combat bottle-necks and build resilience within their supply chains. The goal is to promote cooperation among OEMs and EMS to increase information sharing and maximise the value of electronic components. Doing so will satisfy market needs better and enable OEMs to be better prepared for future events.
The platform provides greater visibility into the electronic components market, allowing companies to identify where demands are likely to be at their most acute. As a member, you can use AIRENC platform to sell your excess inventory directly to buyers (partners interested in excess stock). As a result, we help OEMs and EMS liquidate excess inventory quickly and minimise supply chain disruptions.
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