Impact of COVID-19 on electronic components supply: A future outlook
The deadly coronavirus continues to trigger chaos in the economic sector all over the world. Modern supply chains are burdened with unforeseen stress and pressure, resulting in increased levels of inquiries.
Months before the outbreak of the COVID-19 crisis, trade tensions have been looming on the economy as a result of the intensified tariff war between Beijing and Washington. This is coupled with a wider populist tendency being experienced in various capital cities.
The increase in the trend of protectionism, with specific costs and new financial restrictions, exacerbated bigger concerns and barriers for logistics networks that function in the global sphere.
Optimization has been carried out on the current global supply chain network. This is to enable the identification of lowest lead times and the least likely price. Everyone wants electronics manufactured in China because they can be bought at a cheap price.
Nonetheless, growing developments in politics, change towards purchasing niche products by consumers, and the global pandemic, which is ravaging the world, has brought to light the frailty that can be seen at the center of this manufacturing model.
The underlying costs of one-source dependency and insufficient flexibility in adjusting to real-time impacts have been revealed. Now, we will learn to accommodate higher prices for some goods, if the implication is that we get them quicker and fit our specifications.
The outcome of this is a revolution that has begun, aimed towards increased flexibility, and sourcing at various levels. The increase will be tremendous. In the next couple of years, our expectations are a wider overhaul of the supply chain infrastructure with a new norm based on three major dimensions.
From globalization to regionalization
At the regional level, Logistics hubs will spring up again. In a bid to eradicate one-source dependencies and set up an adjustable and easy supply chain, it is the responsibility of sub-system suppliers, product integrators, and component suppliers to assemble, source, and deliver from the comfort of their homes.
That development was ruled off years back, owing to an increase in Chinese labor costs. China, which used to be the center of attraction for companies in the Asian region, has experienced a shrink in the labor cost differential. Foreign investors are only captivated by the entire network of supply chains involving suppliers and sub-suppliers found in these Chinese spots.
Manufacturers of large equipment now source for a good percentage of their components (about 40%) from China, including pre-assembling. The increasingly excessive number of parts needed, each with varying lead times, going back to regional supply chains poses a complicated challenge. But, this challenge is definitely worth the risk in the world after the coronavirus.
The impact and influence of global supply in the pharmaceutical sector in Europe have been witnessed by everyone. 80% of the active components of its drug supply have been imported from India and China.
The future post-COVID holds expectations for the European government to work tirelessly to see that supplies are drawn from their region. Therefore, we may experience a targeted shift towards regional sourcing.
The supply chain: The new advocate and the pressure test
Following the financial meltdown experienced in 2008, regulated financial bodies were forced to overhaul their balance sheets to ensure readiness for an economic shock. Governments are left with no choice.
Likewise, several huge cyber-attacks seen in the past ten years have pushed technology firms into instituting penetration tests on their system to check cyber-security mechanisms. In some way, the board of directors won’t have it better.
In the world after the COVID-19 pandemic, it will be normal to have stress tests on supply chains. The global business model distributed and enhanced at reduced costs has been exhausted. There is demand for new priorities in optimization for tomorrow’s model. Protagonism has become the order of the supply chain everywhere, and it has changed from working behind the scenes in an organization to being the major driver and leader of the company’s interactions.
Before this, volume stability gave room for the supply chain to provide services at an increased level with reduced costs, but at standard quality. Nevertheless, manufacturing plants and supply chains enable little flexibility in volume – the challenge to meet ventilator demands has brought this to light.
With the variability of volume, supply chains must work towards being more adaptive, especially when forecasts are suggestive of a change in the course of events. Logistics operators and large suppliers in the supply chain industry must be ready for significant and challenging events such as social unrest, deadly pandemic outbreaks, weather events, strikes, and similar disruptions.
To pull through these murky waters, navigators must have visibility. For some industries like consumer technologies or microprocessor development, electronic manufacturers have taken a step ahead to produce comprehensive dashboards that display the full status of manufacturing and shipment, to the smallest detail. These dashboards refresh within a 20-minute interval to give an accurate overview of the entire supply chain.
Technology such as this will surely evolve to be a norm. Using the pharmaceutical industry as an instance, with no current database, whether it is distributed or centralized. Therefore, it isn’t easy to market the essential components of manufacturing drugs. Suppliers and end-users require more visibility on sourcing, and as such, the system needs an upgrade.