The Pandemic and Trade War Lead to Supply Chain Shortages

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The combined challenges of the Covid-19 pandemic and the United States-China trade war have created somewhat of a perfect storm for electronics procurement specialists. As a supply shortage abounds, they must think ahead and respond promptly to avoid the worst effects.

The trade war causes numerous knock-on effects

The trade war between the United States and China started in 2018, and it did not take long for electronics manufacturers to feel the pinch. A report published in 2019 highlighted many of the difficulties, showing that, 69 percent of those polled reported decreased profit margins. More than half (55 percent) raised their prices — a problem that could make consumers less likely to buy from those brands.

Of the companies operating in the U.S., 51 percent said they started sourcing from companies outside China to avoid the increased tariffs on Chinese imports. Additionally, approximately 1 in 5 companies indicated they moved manufacturing operations out of the country and may steer clear of future Chinese business interests.

ControlTek, an electronics manufacturer in Washington State, noted, “ControlTek is rewriting contract language to make it easier to pass the cost of tariffs on to its customers. It is shifting supply chains out of China where possible, and redesigning products to avoid Chinese components where it isn’t.”

The 2019 study also covered job losses. It showed that roughly 13 percent of companies were not hiring as many people, and some of those reduced their existing staff numbers.

No universal solution

The tricky thing about the trade war is that there’s no single solution for every company and electronics procurement specialist. If companies decide to set up operations elsewhere, doing that could take years. On the other hand, if they work with new suppliers that can’t keep up with the required scale, the switch could cause a supply chain shortage later down the line.

Other analysts warn that sourcing from a different supplier or building a plant elsewhere does not effectively tackle the problem. They’re ways to respond to what’s happening now, but they don’t help companies accommodate future trade tensions. If supply professionals take steps to digitize their supply chains, they’ll go with a long-term, all-encompassing approach to trade war issues.

Michael Knight, president of the TTI Semiconductor Group and senior vice president of corporate business development, thinks that engineers can play prominent roles in helping procurement professionals overcome their supply shortage problems. He explained, “Once upon a time there was a function called component engineering that worked closely with procurement to create multiple sources, and in one of the industry’s downturns, that got stripped out,

Companies should also see how they can reduce inventory shrinkage to cope adequately with supply shortage situations. Statistics show that the average warehouse experiences a 0.2 percent inventory shortage, but enterprises can positively affect their statistics. For example, equipment malfunctions and worker accidents are some of the many things that contribute to lacking the necessary components. Combating those problems could lead to progress.

The pandemic brings unprecedented supply chain shortage woes

As the Covid-19 pandemic had a progressively larger impact on people around the world, many of them became accustomed to the strange sights of shelves cleared out of essential and non-perishable groceries. Others waited weeks for items to arrive, especially when ordering things from outside the country. These issues wreaked havoc on procurement specialists, too.

A May 2020 study found that 53 percent of respondents said the pandemic delayed or canceled product launches in the electronics sector. Moreover, 91 percent cited sourcing issues as the main driver of those changed plans. Another interesting finding was that 95 percent agreed that team integration — including external partners — could help companies plan for and overcome some supply shortage issues.

According to a forecast from April 2020, analysts believe world merchandise trade could drop by as much as 32 percent this year because of Covid-19. They expect the effects to become even more severe in sectors with complex value chain linkages, including electronics. The forecast authors said it’s too soon to predict the extent of a possible recovery in 2021. Much depends on how long the pandemic threatens the world, and how policymakers respond to

Another challenge is that even if electronics companies do not deal with problems related to a supply shortage, they could still fall behind schedule. Social distancing protocols mean that plants may have fewer people on a shift, and many factories will have to temporarily close once infection outbreaks occur.

Responding promptly to a supply chain shortage can reap rewards

The coronavirus pandemic put people in uncertain and unsettling circumstances — sometimes in exceptionally short periods. That happened at Flex, a multinational electronics contract manufacturer. The enterprise has 100 facilities in 30 countries, so the issue became extremely widespread fast. By February 22, Flex lacked adequate supplies for 8,000 individual items — more than five times the usual.

Over the next several weeks, the company created a ventilator assembly line in Mexico with the help of virtual reality and a touch-sensitive, parts-tracking display that took up an entire wall. The key thing to remember from that example is that the enterprise did not wait to take action. It pivoted to meet a new need that proved profitable for Flex. That’s not a feasible option for some supply chain professionals, but they should still see what remains in their power to do.

Maintaining open communications with suppliers can help procurement teams better understand the likelihood of problems before they happen. Moreover, using analytics software to gauge current resources against predicted demand can help companies see how much of a gap exists. They can then use that knowledge to plan future moves to mitigate the damage and keep the company as resilient as possible.

Flexibility pays off

The trade war and global pandemic are unquestionably wreaking havoc on supply chains. Professionals should aim to stay as flexible as possible during the ever-changing conditions. Then, they’ll be better equipped to take the most appropriate actions.