When the chips are down- By Joey Constable.
Over the past 3 years, a perfect storm has swept through every supply chain leaving behind devastated but evolving platforms. In the field of electronics, this has affected almost everything requiring a micro-chip from cars to telecommunications; gaming to data analytics. And supply shortages will be with us for a good while yet with estimates reaching well into 2024 from industry insiders such as Pat Gelsinger, Intel CEO, speaking on the semiconductor sector.
The Covid-19 pandemic created unprecedented global supply shortages. Existing pressures on the electronics industry due to the rate of technological advancement in the automobile industry were compounded by widespread closure of manufacturing sites and an exponential demand for products created by the paradigm shift in working structure from office to home.
Add to this the blocking of the Suez Canal, geopolitical tensions between the USA and China, Russia and Ukraine and extreme weather systems affecting semiconductor production plants in Texas and Taiwan, the basis for such predictions is clear to see.
In response, the US and EU have committed funds to stimulate investment in manufacturing and research, aiming to reduce reliance on current global supply chains by 2030. Additionally, companies such as Sony and Apple are investing in their own production facilities to improve security of supply by 2024/5. But what can be done in the interim particularly for companies without the budget for such large-scale investment?
Although a major international player, our client is a relatively small fish in the electronics supply chain but the supply of electronic components is no less critical to its end product. To help navigate this storm, we have encouraged our client to restructure their procurement process by, for example:
Smarter supply chain management – by securing stock of critical components we have moved the operation from a lean, just in time model with little flexibility, long lead times and high risk of missing targets to one which provides more long-term assurances and enables competitive tendering.
Tighter supplier relationships – investing time in building and strengthening supplier relationships has afforded an improved understanding of the overall supply chain. In developing proper communications channels we have promoted the regular reporting of risk and opportunities, enabling our client to make proactive decisions. We have established the provision of order forecasts which in return enables suppliers to enhance their planning capabilities and efficiency.
Alternative components – supply chain stock outs and obsolescence have forced us to be innovative in our problem solving, sparking conversations with suppliers and engineering teams to better understand alternative products and sources. This has led in one instance to a product redesign which will improve security of supply whilst achieving a cost reduction; in another to the implementation of a refurbishment model to remain competitive and reduce wastage.
Adverse situations, because of their inherent threat to the status-quo, can at first appear dark and daunting. However, by taking a step back and adopting a fresh perspective, there is often opportunity to be found. It may well be that with effective change management and innovative, collaborative thinking, the solution to a problem will lead to an altogether more efficient process. Necessity is, after all, the mother of invention.
Joey Constable- Procurement Consultant
