As the pandemic impact on electronics manufacturing and global supply chains emerges, organizations take stock of failures — and how to improve
Those who do not learn history are doomed to repeat it, said writer and philosopher George Santayana. A look at the supply chain challenges linked to the coronavirus (SARS-CoV-2) pandemic highlights the far-reaching implications of these types of events. What will be the pandemic impact on electronics manufacturing and what can the industry learn from it?
We’ll sort out the challenges and opportunities below.
Hope of recovery meets economic reality
The current crisis is unprecedented in its global scope — and we know from past disasters losses can be astronomical. In March 2019, for example, Sony reported a $199 million loss associated with the earthquake and tsunami in Japan. In 2017, Hurricane Harvey evolved from a tropical storm into a massive Category 4 hurricane that devastated Houston, causing a $600 billion blow to economic activity.
Before the pandemic hit the United States, electronics manufacturers and suppliers were initially optimistic about returning to business as usual. In fact, a majority of respondents to a February 2020 IPC survey on coronavirus disruptions said they expected business operations to be “back to normal” by July 2020, while 75% thought October 2020 would mark the return of normality.
“Although manufacturers and suppliers continue to be hampered by the impacts of the coronavirus, most companies do not intend to make major cuts in capital expenditures which suggests companies anticipate demand returning,” said John Mitchell, IPC president and CEO. “The delays will certainly impact sales for segments of electronics manufacturing, with consumer electronics likely to be the most impacted sector, followed by industrial and automotive.”
The current pandemic, though, continues to wreak havoc as the months go on. Organizations of every size, from governments to manufacturers, are trying to balance health and safety concerns with economic realities. Worldwide, McKinsey researchers estimate government deficits associated with Covid-19 could reach $30 trillion by 2023.
Pandemic impact on electronics manufacturing: 3 factors play key roles
Pandemics are different from other disruptions in three main areas — and it raises the stakes for supply chain companies, according to a research paper from Decision Sciences:
- Pandemics have a much broader scope, impacting countries worldwide rather than being localized to a particular geography or business sector.
- The ripple effect of the disruption is magnified and increased.
- Pandemics affect both ends of the supply chain, including both supply and demand, whereas other types of disasters disrupt one or the other. (“For example, the nationwide panic-buying of household items and the complete evaporation of new car purchases in the U.S. during the Covid-19 pandemic.”)
Pandemic highlights supply chain weaknesses
In the global electronics supply chain, the list of woes include component shortages, cost increases, and disruption in communication. Recent events have highlighted failures of supply chain transparency, limitations created by sole-sourcing decisions, the challenges of demand forecasting, and the need for automation and digitization of the supply chain. In addition, the last-mile delivery component of business has become both more critical and more complex than ever before.
Many organizations are realizing the mapping of their supply chain is spotty. Critical information can be hard to find and share across global teams involved in supply chain management. As a result, some are now scrambling to invest in supply chain visibility to backfill the system to close the gap.
Just-in-case strategy takes hold
Meanwhile, the focus on just-in-time (JIT) supply chain management has moved to just in-case approaches. In the semiconductor industry, for example, McKinsey predicts demand will decline by 5 to 15 percent this year compared to 2019. End markets (PC or server, wireless communication, wired communication, consumer electronics, automotive, and industrial applications) vary greatly in terms of expectations for sales declines or gains.
In the electronics industry, supply chain disruptions have resulted in shipment delays for at least five weeks, underscoring the pandemic impact on electronics manufacturing. These delays could last even longer, according to ByteSnap, as countries open and close borders for shipments of raw materials.
The pandemic has created a laundry list of activities that supply chains need to embrace, including:
- Enhancing supply chain transparency through multiple tiers of suppliers to determine whether an alternate source is necessary.
- Carefully tracking available inventory throughout the supply chain in order to meet customer needs.
- Maintaining visibility on final-customer demand (especially in light of shifting behavior caused by fear of shortages) and formulating a plan to adjust.
- Optimizing production and distribution capacity in light of health and safety concerns.
- Managing shifting logistics capacity as transportation modes are impacted.
- Managing cash flow and capital to uncover the potential financial impact of supply chain decisions.
The full extent of the pandemic impact on electronics manufacturing and supply chains remains to be seen. Amid the wealth of challenges, there are also opportunities to improve supply chain visibility and sourcing decisions and to increase resilience, agility, and collaboration between manufacturers and suppliers alike.