On the heels of several 2011 natural disasters, the electronics industry has been met with new pressures as it continues to work towards stabilization.
As we have been seeing, the first quarter of 2012 brought the supply chain closer to "normalcy." Unfortunately, forecasting is never precise and lean inventory stressors will continue due to the global macro-economic uncertainty, adding new levels of complication for the supply chain to overcome. Now it is time for the industry to look back and reassess market exposures, developing new ways to hedge risk going forward.
Lasting impacts from the 2011 bottlenecks call for better pro-activity and responsive strategies. Sole- or limited-sourcing left many supply chains without the requisite parts to meet delivery or demand. OEMs are forced to revisit the viability of sole-sourcing as nearly all had to work aggressively with qualified alternative partners to keep production lines moving.
Consolidation of many manufacturing facilities within or across manufacturers is ongoing, requiring existing facilities in other regional locations to expand capacity or divest to accommodate. This reaction has forced revisions to retool previously profitable strategies for regional logistics and inventory management.
This year, we expect to see an increase in diversified sourcing solutions by OEMs, moving the EMS sector to expand the number of regional facilities to reduce risk in the event of geographically-centered disasters. Vetted, quality, global sourcing partners are critical to this new diversification model.
We also believe that risk management of inventory and assets has been highlighted throughout the industry. Add to the existing challenges the problematic, global macro-economic situation still plaguing the mature economies, plus the present transitions to new architectures and wafers, it is of little wonder that OEMs and the EMS sector are shifting their manufacturing and sourcing strategies.
Two areas of particular importance in this setting are the day-to-day component costs and effective return on end-of-life assets. Smith & Associates has a long-standing history of customer-focused, dedicated services to mediate the volatility of our industry. Two of our services are directly designed to help global OEMs and EMS companies best manage inventory and assets, from purchase through disposition, PPV Plus, and our asset disposition services.
Maximizing our global market positions through scale and agility, Smith is able to help companies consolidate and reduce vendors without sacrificing flexibility and while buffering customers from the risks of traditional sole- or limited-sourcing. With a leading and trusted partner, updating critical supply chain strategies has never been easier, or safer.
Is that something that is done normally? Do you stop at your backup - or do you go for the second backup? create contingency plans and DR and business continuency.
Bolaji, We've seen reductions in AVL's from principals to distributors (authorized and independents) over the years in order to reduce costs through consolidation and to mitigate risk up and downstream. That retraction creates new hybrid opportunities for all channels to reinvent themselves.
Smith & Associates is increasing our market share globally as a result. Principals are still divesting their low margin lines putting our channel on the front lines for lead time issues, price increases and end-of-life/inventory solutions. As a result, we've seen large players this year qualifying new channels to diversify.
In theory, rainy day buffer at tolerable levels is the best answer to soften the cost average in the wake of these devastations, however tell that to the shareholders.
After all,the forecasters are only human themselves too.
We humans tend to be more often than not creatures of habit and enjoy repeating things;whether forecasters like it or not this very inherent bias creeps into their thought-process every now and then.Thats just the way things are.
When it comes to Black Swans you can never,ever count out Crude Oil.
Crude Oil is super-critical in ensuring large-scale Supply Chains work normally.
And as prices have hit the roof recently,a lot of supply chain managers are having to think twice about how they deal with this issue.
Creativity is the name of the game.
I also saw some interesting articles which show how badly the Shipping business has been affected by the recession.Some of the big shippers are offering Free Fuel to avoid their Ships going empty.
Thats how bad things still are in the Global Economy.
Dustin, If the natural disasters of 2011 are still shaping the electronics industry supply chain what happens if new ones occur in 2012? These occurrences don't announce their plans and the industry has been caught unprepared before. In your opinion, as the industry tries to control the negative effects of the last disasters are the players also putting in place mechanisms to reduce the impact of any future events?
If a company is concerned about not having a single source situation for a critical component, secondary sources should be identified and qualified fairly early in the product life cycle, and should be procuring product from multiple sources prior to a supply issue. Then, transition from one source to another is a simpler (but not necessarily simple) matter. But what if the supply line issue comes from scarcity of a raw material required by either supplier? Or miltiple suppliers are all located in the same geographic region? Risk mitigation is easier when you know what risk you want to protect against...but when you are expected to protect your company against any eventuality, that is a difficult matter!
I agree that inventory risk management is pretty important. Although I'm not sure that companies have studied this too well.
Do you think they are prepared to change suppliers very fast? in case one of them stops producing (for any reason)? It's really hard to do, and costly but it's the only thing that could work in case a natural disaster (e.g.) would affect the supplier.
@Barbara - I guess that saying reflects poorly on the person doing the forecasting, but it is more accurately a statement about how difficult the task of forecasting really is!
@mfb: it is interesting that you note that. The "local" distributor went the way of the dodo bird in the 1980s and 1990s but is making a comeback of sorts. Distributors aren't storing inventory in every market like they used to--overnight shipping has taken care of that--but they are opening local offices again. It seems to be strking a chord with customers. These guys don't have the kind of money to dally with--these offices are deliberate and the marekts have been researched for some time now.
@eldridge: LOL. It still strikes me as funny we all just assume the forecast is wrong. It is; it is a reality of doing business; and the best one can hope for is to mimimize the risk. Still, we should set the bar higher, don't you think?
As semiconductor penetration increases, it is worthwhile to stop and recognize that not all industrial clients may have the same familiarity with electronics industry best-practices.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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