Over the past 20 years, there has been a move toward a more diverse component sourcing model. But, with the logistical challenges that Covid-19 has presented to the global supply chain, what had been a steady drift has become a seismic shift. With an unpredictable global market, purchasers find themselves considering new vendors and markets – previously perceived as a risk – and been forced to streamline processes in an attempt to reduce cost and juggle remote or reduced teams. So how might this new-found flexibility impact the global components supply chain in a post-pandemic world?
For most of 2020, all vertical sectors have been disrupted. Some markets have seen significant slowdown, while others have actually experienced an upturn. In general, as we move into the last quarter of 2020, most are showing signs of recovery.
What is certain is that every link in every supply chain has felt the ripples of the virus. An IPC survey in March revealed that 69 percent of respondents said they had received warnings from their suppliers about shipment delays. The closure of production lines across the globe stemmed the flow of new products coming into the market. It became more difficult than usual to reconcile supply and demand, leading to lost opportunities.
The measures taken to mitigate the effects of Covid-19 saw sourcing processes slow to a crawl with an increase in budgetary pressures as different verticals juggled their specific challenges. While automotive was hit particularly hard, on the other side of the coin, time-to-market times for medical technology was significantly accelerated.
Purchasers were forced to reconsider the way they source components, finding new suppliers, taking chances they wouldn't normally entertain. According to the IPC survey, (55 percent) indicated they were actively seeking alternative sources for components and materials.
For example, China was, and remains a touchstone territory for components sourcing. But as the first country to enter lock down – companies around the world were suddenly facing a massive void in their supply chain with the semiconductor industry particularly impacted. Equally, purchasers who had favored certain suppliers – especially if they are used to a franchised model – found that they could no longer fulfil orders. It is also fair to say that the so-called ‘grey market’ has tarred many vendors with the same brush as unreliable supplies due to an inability to distinguish between the two.
Globalization is an emotive subject, but it would be hard to deny that it is global, digital connectivity that enables countries, companies and all the people that rely on them to react when something like Covid-19 impacts.
While old models floundered, a digitalized supply chain was already well equipped to respond to the crisis by simplifying purchasing processes and connecting buyers to new suppliers they can trust. Aggregate sites have traditionally been unreliable in this respect, but e-commerce platforms are at a distinct advantage in their potential to offer a ‘one stop shop’. With appropriate digital tools, purchasers can easily view supplier/component alternates and align them to BoM priorities including price, traceability, performance and lead times.
An unexpected benefit of a digitalized supply chain is that purchasing trends could be identified in real time, allowing everyone along the pipeline to react and facilitate shifts in demand. This came into significant effect over the past 6 months, in the MRO (maintenance, repair and operations) area in particular.
Outside of electronics – demand for PPE is an obvious example but this was soon followed by medical technology companies accelerating production or even spearheading the development of equipment to support in the fight against the virus.
Purchasers understand that the distribution business is changing, now they need it to adapt faster so they can benefit from what analysts refer to as the omnichannel. This single channel works in multiple ways, using digital platforms and tools to break down the old 'pipeline' model and deliver something more intuitive, risk-responsive and convenient.
Tied into this is a closer assimilation with processes to avoid silos, support teams to collaborate remotely and ensure absolute cross-department transparency with budgets and lead times. This means that ERP/API integration are more vital than ever before to make sure that internal processes are in step with supply. The same can be said of OrCad integration for engineering teams or Ultra Librarian, which streamlines the RFQ process – something that is of great importance for any buyer.
As each of the end markets enabled by the electronics industry starts to recover it will generate higher demand for components – particularly in technologies that are supporting a return to a more normal way of life such as BLE powered devices to support social distancing, contactless devices and industrial hyperautomation.
Distribution channels will need to react accordingly in order to avoid the same sourcing conditions we have seen during the pandemic; a disparity between supply and demand. In the case of the pandemic and its recovery, the same forces will be exerted on both sides of the equation. Managing that during recovery will be just as challenging as it was during slowdown.
Just as businesses and employees are starting to question a return to the office after months of successful home working, the electronics supply chain faces a moment of re-collaboration. With more reliable digital tools to ensure traceability, drop-shipping – which is currently viewed with suspicion in the B2B world – may well become a preferred model for cost-efficiency and convenience – bringing component sourcing up to date with consumer platforms like Amazon.