For years, the electronics industry has been wondering when the pandemic-driven chip shortage will end. But even when this one ends, another might be looming on the horizon. Because, the reality is, shortages are part of a normal boom and bust cycle.
Instead of waiting for a shortage to happen, take a proactive approach and use these strategies to prepare for the next shortage market.
PRIORITIZE SUPPLY CHAIN RESILIENCE
A resilient supply chain is fit and flexible, ready to recognize disruptions and react quickly. Building resilience takes time and money, but it’s worth the effort because it will prepare your supply chain for when the next shortage market inevitably arrives. Here are some best practices to make your supply chain as resilient as possible.
Diversify Your Supplier Network
One of the main components of a resilient supply chain is a diverse supplier network. Having multiple sources for each part gives you options when shortages arise. For example, if a natural disaster in Taiwan shuts down your tier one supplier’s factory, having a tier two supplier located in Europe will allow you to weather the storm.
Choosing suppliers closer to home, where possible, is another helpful tactic. The less distance between supplier and consumer, the lower the risk of natural disasters, economic downturns, and geopolitical events causing disruptions along the way.
When creating your risk mitigation plans, ensure your suppliers have plans in place as well. Strengthen your own resilience by building a network of resilient suppliers. Once this network is in place, keep it healthy by adding alternate suppliers when needed and regularly reviewing new suppliers for common products.
Develop a Short Reaction Time
Another key feature of resilient supply chains is their ability to react and adapt quickly. This means recognizing supply chain disruptions when they occur—even if their effects may not be visible yet.
A resilient supply chain strategy not only considers up-to-date market trends, but includes an assessment of these trends and gives foresight into how they might affect the company. This allows a team to react as soon as the disruption occurs, rather than waiting for the disruption to build. The shorter the reaction time, the better a supply chain will be prepared for the next shortage market.
Purchase Safety Stock
Purchasing extra inventory ahead of time can be challenging, because it costs money upfront to buy and store. But when planned correctly, safety stock can significantly enhance supply chain resilience and prepare you for the next shortage market. Despite the cost, it may make sense to purchase safety stock for the most critical or high-risk components.
LEVERAGE ADVANCED ANALYTICS
The next step to preparing for shortages is equipping your team with the resources needed to help see them coming. There’s so much information available, it can be overwhelming. Choose reliable, up-to-date sources for your market forecast information, and always consult multiple sources to ensure you see the whole picture.
Don’t forget that on-the-ground sources can provide a much clearer glimpse into the market than news and forecasts. Stay in close contact with other players in the industry—partners, suppliers, customers, and even competitors—to see what’s really going on. A trusted supply chain partner, like a distributor, will keep their finger on the market’s pulse, spot emerging risks, and alert you to them quickly.
FOSTER INNOVATION
Anyone who’s spent a few years in the electronics industry has probably encountered a company culture that was averse to change. Too often, designers continue to use outdated, hard-to-source parts because they’re familiar with them. Supply chains continue using old practices that no longer work because this approach seems easier than initiating change.
Change is hard, but it’s the only way to prepare for the next shortage market—and, ultimately, succeed as a company. Foster a culture of innovation by looking at change as an opportunity for growth rather than an inconvenience.
It’s also crucial to encourage cross-functional collaboration within your company. Preparing for the next shortage market should be on everyone’s radar, not just those managing the supply chain. When designing new parts, engineers should communicate with team members who manage the supply chain to ensure they’re using parts with the lowest risk. This means using COTS parts where possible, avoiding exotic or single-source components, sourcing from suppliers close to home, and buying ahead if it makes sense. By promoting cross-functional collaboration, you can design parts with both performance and risk mitigation in mind.
Unfortunately, shortages are inevitable. Instead of reacting to them after they arise, take a proactive stance. Apply these best practices to build a robust supply chain and prepare your team for the next shortage market.
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