Report: Shortages Threaten Electronics Supply Chain | Trends
By Jack M. Germain
May 26, 2020 11:43 AM PT
COVID-19’s rampage is causing the electronics industry worldwide to suffer supply chain setbacks.
Product innovation remains incredibly important in today’s new normal, but more than half (53 percent) of electronics industry product launches have been delayed or canceled due to the pandemic, suggests a new study
Supplyframe released last week.
report, “2020 Trends in Electronics Sourcing,” indicates that COVID-19 also has led to increased component costs, the need for manufacturers relying on the global electronics value chain to rework their products, and the inability to fill customer orders.
The report’s findings are especially problematic for a challenging economy under greater pressure to drive new business revenue and protect margins, according to Supplyframe, an intelligence platform for the global electronics value chain.
Dimensional Research conducted the research through an online survey of 217 decision-makers at companies with 500 or more employees. The respondents were responsible for sourcing electronic components at global manufacturers across high-tech, industrial equipment, automotive, aerospace, and medical device companies.
Sourcing issues were the cause of product launch delays, according to 91 percent of the survey group.
The path to solving component sourcing issues requires integration of engineering, sourcing, finance, and supply chain teams, including external partners, 95 percent of respondents said.
This points to the importance of de-risking as early as possible in the design cycle, the report notes.
“New product introduction — NPI — is never easy, but the shortages experienced during the coronavirus pandemic have created a new set of challenges for manufacturers across the globe,” said Steve Flagg, CEO of Supplyframe.
The shortages highlight the importance of building resilient supply chains, which starts with a connected NPI process in the product design phase, he explained. A resilient supply chain requires effective collaboration across sourcing, engineering and manufacturing, with prescriptive intelligence injected at every decision point.
“The pandemic has shaken up our economy, which has increased the importance of driving new business revenue and protecting margins,” said Richard Barnett, chief marketing officer at Supplyframe.
It is important to understand the effect this has on the industry. The industry needs to have reliable data from decision-makers responsible for sourcing electronic components from global manufacturers across high-tech, industrial equipment, automotive, aerospace, and medical device companies, he told the E-Commerce Times.
The study highlights the broad effects of the COVID-19 pandemic on the electronics value chain. Following are the most pertinent survey results:
- About one-third (31 percent) of respondents were onboarding new suppliers without going through approved vendor qualification processes, thus increasing their risk;
- One-fifth (20 percent) said they had experienced an unusually high number of mistakes due to team members’ stress and distraction;
- Nearly as many (17 percent) said they were forced to select lower-quality component options.
- In addition to the related product launch impacts, 37 percent of those surveyed said their companies’ overall component costs had increased.
- The same share said they were unable to fill customer orders.
- Nearly as many (35 percent) said they needed to rework products to replace components that no longer were available.
Supply Chain Roadblocks
The most significant takeaways from the report are that product innovation continues to remain incredibly important as we adapt to our “new normal,” according to Supplyframe’s Barnett.
“However, electronics industry product launches are being delayed or canceled due to the pandemic. COVID-19 is just one contributing factor to these challenges,” Barnett said.
A lack of collaboration between engineering and sourcing teams can add extra strain in the process. The majority of survey respondents felt that sourcing issues were the cause of product launch delays, he explained.
The supply chain interruptions are resulting in broad changes to policies regarding single sourcing and a massive effort to strengthen and diversify supply chains, noted Rob Enderle, principal analyst at the Enderle Group.
The issue is “very significant,” he told the E-Commerce Times.
“There will be a sustained revenue shortfall due to the lack of product refreshes during the pandemic event. It will also drive companies to reconsider sourcing and manufacturing locations, so they have far better redundancy and ability to survive events like this in the future better,” Enderle added.
COVID-19 and Beyond
Lack of collaboration between engineering and sourcing teams is contributing to the product launch delays, according to the report, but COVID-19 is just one factor contributing to these challenges.
Three others are instrumental in causing supply chain issues: 1) the complexity of global supply chains; 2) inadequate enterprise systems; and 3) limited collaboration between internal engineering and sourcing teams during new product design.
The lack of collaboration can add to costs, lead to product launch delays, and expose manufacturers to greater market risks, the report notes. It also can jeopardize the reputation and success of engineering and sourcing professionals.
Collaboration issues caused product introduction delays that slowed time to revenue, according to 79 percent of the survey group. Sixty-two percent said delays happened occasionally. Close to one-fifth (17 percent) said they occurred frequently.
Meanwhile, 85 percent of the total survey group said engineers had selected components that could not be sourced effectively, possibly related to inaccurate market intelligence.
The inability to consider accurate lead times resulted in greater costs for manufacturers. A solid 81 percent of the survey group said they had been forced to make expensive spot buys because of component availability issues.
Another industry pain point was addressing material, quality and government regulations. Compliance negatively impacted sourcing processes, said 93 percent of the survey group.
Regulatory requirements often required rework, noted 62 percent. Compliance concerns often slowed component selection, said 61 percent. They negatively impacted component availability, according to 34 percent.
Changing Market Realities
Existing systems do not improve decision-making or reflect changing market realities, the survey revealed. Many businesses have enterprise systems in place.
Still, more than three-fourths (77 percent) of respondents identified their enterprise resource planning (ERP) and product lifecycle management (PLM) systems as inadequate for managing risks in electronic component sourcing.
Respondents elaborated on inadequacies in this area. For instance, 89 percent said they had challenges with existing applications used for sourcing electronics components.
Of that group:
- Thirty-nine percent said new product component selection frequently required bill of material (BOM) cleaning and revisions;
- Thirty-six percent said workflows brought sourcing teams in too late to effectively influence design decisions;
- Thirty-five percent said sourcing technologies were inflexible and unable to respond to unplanned events like hurricanes and pandemics.
- Archaic solutions also lacked cost optimization capabilities that could benefit electronics companies, the survey suggests. Indeed, 81 percent of respondents said their sourcing applications prevented them from selecting optimal cost options.
- More than half (54 percent) ran into the problem occasionally. Nearly a third (28 percent) dealt with the challenge on a frequent basis.
Need Advanced Tech
Businesses can gain more control and predictability with advanced sourcing technology, the report suggests.
“Uncertainty and complexity are constants in business today, but global manufacturers have more control of managing their electronics sourcing risk than they may realize,” said Supplyframe’s Flagg. “Risk does not exist solely in post-product release endeavors.”
Eighty percent of the lifetime risk and cost of a typical hardware product is decided during that product’s initial design, he pointed out.
The design phase is where the disconnect often exists, Flagg cautioned.
When engineering teams select components and suppliers without input from procurement and sourcing teams, they may overlook better options, potential cost savings, and other factors that could lead to improved lifetime product margins and revenue, the report concludes.
When teams have access to market intelligence about real-time inventory availability, cost and changes, they can collaborate effectively, balancing cost and risk.
Nearly all survey respondents (99 percent) reported direct benefits from early collaboration between engineering and sourcing teams.
Potential Troubling Outcomes
Persistent sourcing delays could lead to significant additional redundancy in sourcing, a shift away from China as a manufacturing source, and design decisions that result in far higher flexibility in the components being used, noted Enderle.
“We should see far greater modularity going forward, for instance,” he added.
If sourcing delays persist, organizations may have to innovate to come up with completely new ways of doing things, observed Supplyframe’s Barnett.
“You can’t live with persistent product and supply chain delays. Because of this, there will be an increased focus on sourcing and agility. We like to look at this as an opportunity for the ‘new normal’ to create new systems,” he said.
The next generation of electronics products will be more reliant on design, but delays will always occur, Barnett noted.
“There needs to be risk and cost management at the intersection of engineering, design and sourcing, because that is where you’ll address those sourcing issues, he added.
The China Question
The supply chain shortages would be far less critical under COVID-19 if so much of the electronic supplies were not based in China, Enderle pointed out.
Companies likely will implement far more diverse and flexible supply chains in the future, he said. “It appears Vietnam may be one of the biggest beneficiaries of this move, but we are still early in the shift, and that could change.”
Meanwhile, China is starting to come back online, according to Supplyframe.
The challenge is more about aligning trade lane capacity for imports versus exports, Barnett said.
“What’s happening is that Chinese exports are ramping up, but U.S. and European exports are not, and it is causing an imbalance. It’s not China that’s the issue, but more so the general economic slide,” he explained.
End of the Chain?
Even with huge impacts on demand, the supply chain will not expire, according to Barnett. The global electronics value chain is embedded into multiple industries globally.
“This includes auto, medical devices and industrial equipment,” he noted. “You can see that in the growing electronic content in passenger vehicles and in sensors for manufacturing automation, for example.”