Supply Chain Day: the ongoing chip shortage and its impact on the electronics industry
The electronics industry has been facing a major challenge due to the ongoing chip shortage since the start of the pandemic. This shortage has resulted in significant disruptions in the supply chain, longer lead times, and reduced allocation of components.
In recognition of Supply Chain Day, ByteSnap Design spoke with an industry insider who has decades of experience in electronics design and procurement to gain insight into the current state of the market and future trends.
Moving production to the US and Europe
Many businesses are now looking to restructure their supply chains to reduce risk and ensure greater resilience in the face of future disruptions. One approach that has gained traction is reshoring production to the US and Europe. This shift is driven by several factors, including rising labour costs in Asia, changing trade policies, and the increasing need for greater supply chain transparency and control.
Reshoring also offers the advantage of reduced transportation costs and shorter lead times, allowing companies to respond more quickly to changing market conditions. In addition to these benefits, reshoring production can also help companies to better protect their intellectual property and ensure compliance with regulatory requirements.
While there are still challenges associated with reshoring, including higher upfront costs and the need for specialised skills and equipment, many businesses see it as a necessary step in securing their long-term competitiveness in the global market.
Security of Intellectual Property
The security of intellectual property (IP) is a major concern for companies operating in Asia due to the risk of IP theft. In recent years, there have been many cases of intellectual property infringement, with counterfeit products and copies flooding the market. As the insider noted, “It’s always a risk, but it’s one you can manage.”
To mitigate the risk of intellectual property theft, companies can take several steps, such as partnering with local firms that have a good reputation and understanding of the local market. Such partnerships can help companies to better protect their intellectual property by providing access to local knowledge, expertise, and resources. Additionally, setting up their own production facilities can provide companies with greater control over their supply chain and reduce the risk of intellectual property infringement.
Despite the risks involved, companies cannot afford to ignore the opportunities that Asia offers as a manufacturing hub. Instead, they must balance the potential risks against the benefits of manufacturing in the region.
Quality issues in different regions
Quality is a multifaceted issue that the electronics industry faces, with different regions possessing unique strengths and weaknesses. Tier One Contract Electronics Manufacturers (CEMs) are particularly adept at standardising processes and delivering successful outcomes in low-cost regions. However, smaller players in the industry may find it challenging to achieve the same level of success. It is vital for companies to consider the quality capabilities of their chosen manufacturing location.
One way to ensure quality control is through regular communication and on-site visits to factories. This helps companies to identify and address any potential issues quickly, which in turn can prevent delays and production setbacks. In addition, quality control measures can be implemented throughout the supply chain, from component selection to final product testing. By doing so, companies can reduce the risk of quality issues and improve customer satisfaction.
Freight costs and environmental impact
In addition to the rising cost of sea freight, there are other challenges that companies face when it comes to shipping their products to the UK and EU. One such challenge is the long transit time, which can leave finished goods inventory in transit for several weeks. This can be particularly challenging for companies that rely on just-in-time delivery to meet customer demand. Furthermore, the COVID-19 pandemic has caused disruption to global supply chains, leading to port congestion and delays in shipping times.
To mitigate these challenges, companies are exploring alternative shipping methods. Air freight is faster but more expensive, while rail freight offers a good balance between speed and cost. However, rail freight is limited by the availability of infrastructure and can be subject to border controls and customs clearance.
Companies can also consider rethinking their supply chain strategy to reduce the reliance on shipping altogether. This could involve reshoring production to the UK or EU, or sourcing components from local suppliers. Such a strategy could also help to reduce the environmental impact of shipping and improve the resilience of the supply chain.
Supply chain flexibility and hedging variations
The insider emphasised the importance of supply chain flexibility in response to the unpredictable nature of demand in the technology industry. Staying in regular contact with factories and spending time onsite is necessary to ensure quality and timely delivery of products. Finally, dealing with the hedging of variations with the US Dollar and the Euro is simpler and more stable than dealing with other currencies, making it an attractive option for companies.
In conclusion, the ongoing chip shortage is having a significant impact on the electronics industry, and companies are exploring new solutions to mitigate its effects. Moving production to the US and Europe, mitigating the risk of intellectual property, addressing quality issues, managing freight costs, and maintaining supply chain flexibility are all important considerations for companies. By taking these steps and developing sound currency hedging strategies, companies can better manage the unpredictable nature of demand in the technology industry. As the industry continues to evolve, it is important to stay up-to-date on the latest trends and strategies to stay competitive.
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