Companies Must Learn From The Electronics Material Supply Challenges Brought By COVID-19
Covid-19 was the black swan event that exposed the critical fragilities inherent in global supply chains. According to Accenture, 94% of Fortune 1000 companies have experienced supply chain disruptions due to the pandemic forcing 55% of those companies to downgrade their growth projections.
Even as the virus continues to ravage the world, people and governments are learning to co-exist with the virus – yet there’s a shortage of everything. Experts have sounded alarms about the inevitability of supply chain disruptions in the electronics industry for years.
In the wake of covid-19, manufacturers are facing severe shortages of electronics materials that are hindering every industry from automotive to smartphone manufacturing.
Demand is on the rise, yet there aren’t enough semiconductors, capacitors, resistors, and other electronics materials to go around. Still, placing all the blame on Covid-19 would be short-sighted – the pandemic exposed and exacerbated supply chain cracks that were already in existence.
Let’s break down what’s causing the global shortage of electronics materials and how companies can survive them.
Electronics Material Shortages: Challenges in 2021 and Beyond
The current landscape for electronics materials sourcing is in turmoil, and this is likely to continue into 2022. Before the pandemic reared its ugly head, electronics supply chain issues revolved around product lifecycles and counterfeiting – electronics material shortages were far and in between.
However, the electronics manufacturers tend to rely on just-in-time manufacturing as this allowed them to identify the ultimate trade-off between minimum lead time and reduced production costs. Longer lead time would only be tolerated if it allowed manufacturers to save a few cents per part.
Normally, manufacturers had their pick of suppliers and could take advantage of a healthy, interconnected logistics system. As a result, they could minimize the impact of shortages, counterfeits, and even tariffs.
Many sourcing avenues shut down at the peak of supply chain disruptions, leaving production firms with half-finished products and idle capacity. Many companies relied on China for their electronics materials, which threw everyone in a loop since the country was ground zero for the coronavirus.
The semiconductor supply chain, in particular, has been hard hit. Demand for consumer electronics and cars has skyrocketed to the point where several manufacturers are limiting, and in some cases, halting production.
So, how integral is this one component? The chip shortage has disrupted the manufacture of practically everything that plugs in. People invested in computers for their home offices and virtual schools and splurged on gaming consoles and other entertainment systems as they sequestered during quarantine. In addition, more people are buying cars to avoid crowded mass transit systems.
The high demand for semiconductor chips is threatening every industry dependent on electronic components. The automotive sector has borne the brunt of electronics material shortages to the point where industry heavyweights, such as GM have halted the production of some models. Modern cars use a considerably high number of semiconductors to control aspects such as fuel consumption. Car manufacturers might be the worst hit, but other industries are also suffering the consequences, for instance, smartphone makers.
Solutions to the Electronics Material Shortage
It’s becoming more evident by the day that the continuing electronics material shortage is less about the coronavirus pandemic and more about the vulnerabilities inherent in the supply chain infrastructure.
A lack of diversity hinders the electronics supply chain. Component manufacturers are fewer than they should be and are mostly clustered within the same geographical region. The pandemic and geopolitical turmoil between China and the U.S has made this lack of diversity painfully obvious. Additionally, the just-in-time supply chain model isn’t doing manufacturers any favors. It relies too much on predictability and lacks the agility and resilience to adapt to disruptions.
One solution is to source electronics materials closer to home. Reshoring component supply chains will minimize the risk of supply chain disruptions. Not to mention it reduces overall transportation costs. Regional manufacturing and distribution hubs mitigate the threat of black swan events as well as geopolitical turmoil.
More sources bring less risk. Diversifying the supply chain will be crucial in preventing future manufacturing deficiencies. But, reshoring and diversification are long-term initiatives. They require time and significant capital investments. Therefore, these measures do little to solve the current electronics material supply problem.
Closing Thoughts On Electronics Material Shortages
It seems electronics material shortages will get worse as supply chains continue to be bottlenecked by high demand, rising costs, lack of supply chain diversity. Undoubtedly, future supply chains will be more adaptive to risks as countries and industries diversify global supply chains.
In the meantime, the best step you can take is to partner with a local electronics contract manufacturer, as this will ease some of the supply chain difficulties. You can still succeed by staying informed and planning ahead. Manufacturers and suppliers must work together to ride out this storm. If ever there was a time to optimize production schedules and supply chain management, it would be now.
About The Author
Tony Zuberbuehler is a Sales Manager at Versa Electronics with a focus on electronic contract manufacturing. Tony’s career in technology manufacturing spans 25+ years and has included roles as an engineering liaison, in purchasing and material management, manufacturing and planning, customer interfaces, and product fulfillment. Connect with Tony Z on LinkedIn.