I think the risk of components becoming useless or obsolete is a major factor. Apart from it, there is also the risk that prices in future may go down because of an increase in supply. This too might discourage companies from stockpiling.
Hi TaimoorZ--In general, I don't think stockpiling is a good strategy because of the risk that the market could reverse quickly. (That's the whole idea behind commodities trading--scary.) For the electronics supply chain, I think it would depend on the relationship between the raw materials suppliers and component makers. For example, if the raw materials suppliers have a reasonable expectation that cancelled orders could be resold at fair market value, then components makers might want to up their orders or move to the front of the line. I think there's a low risk that anyone will get "stuck" with the material since most are in constant demand. However, if the materials have to be processed in a specific way for electronics, that narrows the resale market and increases risk.
Interesting points Barbara. Considering this situation and anticipating future price hikes, I believe some companies may consider procuring the raw materials in advance and storing it for future. How would you consider this strategy?
Yes I agree the organizations who are interdependant for raw materials must work in some understanding for price raise. Aren't they governed by group of companies or board of directors?? But increase in price of minerals is bound to happen with the way companies are digging out minerals and the world is consuming, there would be a time when mother earth may be depleted from all its natual minerals. I cant imagne what would be the cost of minerals at that time. Hope our future generation get to see some precious minerals...
Ken's point is a very good one--a well-informed buyer is the best defense. The other key word is "justifiable"--it's not unreasonable for suppliers to pass price increases down through the supply chain, but they cannot be arbitrary. A good partnership should include the kind of information buyers need to track raw materials and price fluctuations. If not, the information is out there--many environmental mandates require declaration of what materials are contained in a component--or better yet, seek a partner that will share that information.
Barbara, I think that the increase in the cost price of raw materials is not good news for the supply chain industry. More over this may force the industry to cut down the production line also, which will in turn increase the cost of production and other associated costs. Recently we had seen the hike in wage structure also with the changes in taxing policies of government. So all these changes going to be affect the industry very badly, which may end up in wind up of small production line industries. At the same time others also has to struggle well for the existence. In such a scenario, we have to think seriously about alternate mechanism to beat the cost factor and to avoid dependencies.
Buyers need to keep in mind that even with commodity prices in metals on the rise that their component prices need not move proportionately with the commodity’s increase. These increases, along with labour inflation in places like China, give suppliers an excuse which they can use to argue for more. Buyers are (or should be) aware of the cost breakdown of their procured components and can calculate the maximum justifiable increase. For example, if copper is 10% of a components cost and it increases 10% then the justifiable increase is 1%.
The companies who have driven suppliers to minimal acceptable margin levels will see maximum justifiable price increases; those that haven’t have potential to avoid increases if they can create adequate leverage for their negotiation. Remember, the cost and price relationship is not fixed.
Working closely by supplier, distributors and buyers is a result of business arrangements. The opportunistic element is so strong that no good will be sufficient for prices to be reasonable. Hopefully the natural market elements will contribute to price stabilization. Monopoly would be bad or good only for one company or nation.
Lets not call this oppurtunistic, price is a phenomenon these days. With oil touching nearly 100$ and thus increasing the prices of most of the commodity prices its high time electronic industry take care of this price rise and pass it on to the end customer. Nothing wrong in the price hike in accordance with inflation.
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.
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.
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.