Supply chain disruptions and component shortages continue to play an outsized role in our economies. We all feel their impact at the “microeconomic” level: reduced availability and delayed deliveries for a range of goods from automobiles to electronics; rising and more volatile costs for construction materials impacting the real estate industry. At the macroeconomic level, these same forces hold back employment growth, fuel inflation and threaten the post-pandemic recovery. These shortages and disruptions are especially pronounced in the electronics industry, where demand has been boosted by both temporary forces (greater need for laptops, tablets and gaming devices during the lockdowns) and structural ones (the rise of Industry 4.0 and energy transition towards greater electrification including electric vehicles).
A majority of economists and policymakers, from the US Federal Reserve to the European Central Bank, insist that these disruptions will be short-lived.
The industry leaders in the trenches, however, have a different view: the latest #WTS50 survey ((What’s the SCOOP 50 Most Interesting and Influential EMS industry leaders) shows that they expect to be dealing with these disruptions for quite a while. BMK’s Susanne Gujber notes that “New orders within a year are sometimes not even possible.” Bruno Racault, CEO of ALL Circuits, has no illusions: “We fully expect this crisis to last well into 2022.” KATEK Group’s CEO Rainer Koppitz holds a similar view, as does Cybord’s CEO Zeev Efrat.
The message from the front lines sounds loud and clear: don’t trust the economists’ sanguine view, and brace to withstand the impact of these disruptions for the next 9-15 months. The industry players surveyed by SCOOP paint a vivid picture of the challenges: production planning becomes a lot more complex, with the impending risk of stoppages; quality control becomes even more important as more counterfeit parts find their way into the ecosystem. Margins come under stress as prices of parts and raw materials rise. “Higher component prices and exceptional freight costs cannot all be billed to customers”, stresses Koppitz.
The #WTS50 survey also reveals interesting insights into how companies are handling these challenges, through strategic changes that will likely have a long-lasting positive impact on the industry.
Companies’ coping strategies can be grouped into three main pillars:
1. Technological innovation. As is often the case, stress accelerates innovation. Design for Disruption (DfD) is a classic example: Product redesign becomes a very effective way to create alternatives to critical parts that might become hard to procure; DfD allows companies to maintain a product’s function while using different materials or components. As Season Group’s CEO Carl Hung puts it: “One way to get around supply chain disruptions is to be creative and smart about it.” Similarly, new technologies that help companies detect counterfeits and inspect quality throughout the procurement and production process are delivering enormous value in the current situation. Zeev Efrat, CEO of Cybord, stresses that “Worse than no components are fake components or components that are not fit for purpose.” Cybord therefore provides its customers with real time component inspection systems that enable a “zero-trust” complete traceability approach.
2. Operations innovation. Alfred Birgmann, Vice President of Global Procurement for Zollner, notes that the industry’s motto has shifted from “Cash is King” to “Stock is King”. Stronger inventory and pipeline management becomes extremely important. Companies are also striving to increase the flexibility of their production processes so as to accommodate shifts in materials availability. Microart focuses on dual sourcing and better inventory planning; KATEK is also developing second sources, and encouraging customers to adopt longer planning horizons; BMK’s Susanne Gujber stresses the role of the transport management team to ensure reliable shipments.
3. Ecosystem innovation. The industry leaders surveyed by SCOOP underscore that flexibility and adaptability are best achieved at the level of the industry ecosystem. This requires closer collaboration with suppliers, partners and customers, which in turn requires closer and more transparent communication, so that every player can factor in the full set of information and uncertainty, and plan more effectively for the longer run. This helps maintain strong relationships with high-quality suppliers, and safeguard trust with customers. Mark Wood, CEO and President of Microart, is emphatic on this point: “Regardless of the complexity of the problem, the greatest tool in our risk management toolkit has always been transparency with our customers, our suppliers, and our partners.”
All these three sets of strategies require a stronger underpinning of data and software analytics – they are part and parcel of the Industry 4.0 acceleration. And ultimately, they need to be accompanied by the build-up of greater fabrication capacity for chips and other electronics components. The EMS industry will continue to experience solid growth in the years and decades ahead. And thanks to the three-pronged strategic innovations spurred by the current disruptions, the industry will become increasingly more efficient and flexible. As they say, never let a good crisis go to waste.