How can you navigate the supply chain for cloud storage components during a time of disruption? We sort out the current state of the electronics industry and the strategies to pursue.
With the increase in telecommunication across most industries — paired with recent growth in online education, gaming, and other shifts in user behavior — demand for cloud storage and, subsequently, cloud storage components has spiked in 2020.
Let’s take a look at the current state of the electronics industry and the most effective ways to navigate the supply chain for cloud storage components.
Supply chains are changing: Here are 5 areas to watch
As COVID-19 impacts industries and populations across the globe, supply chain shifts are happening at a historic rate. There are five areas to watch, according to an article in Horizon Technology:
Supply chain disruption:
Unprecedented supply and demand fluctuations have forced organizations to reconfigure their supply chains, initially in response to last year’s trade regulations and, more recently, as a result of pandemic-induced international travel and staffing restrictions.
Impact on demand:
As a global contraction has hit many industries, demand for some products and services have dipped, while demand for others, such as cloud-based computing, has shot up.
Regional differences:
The supply chain effects of COVID-19 are driven largely by how specific countries are affected and what types of hardware and components are manufactured there.
Data growth:
Although a 2018 study from IDC / Seagate predicted an explosion of annualized data generation to an incredible 175 zettabytes by 2025, the impact of the coronavirus on those numbers remains to be seen.
Managing uncertainty:
Depending on how well the supply chains for IT, cloud storage components, and others are able to maintain agility, COVID-19 has brought a volatile environment that may have lasting impacts.
Manufacturers of cloud storage components face uncertain conditions
For hardware OEMs, the disruption presents both challenges and opportunities. On one hand,
Electronics manufacturers are straining to meet customer requirements. And as demand for robust infrastructure increases — including NVMe, NVRAM, and persistent memory — supply isn’t always keeping up with demand.
On the other hand, the explosive growth of the global cloud storage market — forecast at a 25% annual growth rate between 2017 and 2023 — is good news for storage makers. The report from Market Research Future (MRFR) also states cloud storage has emerged as an “essential concept” and will continue to gain traction, reaching $104 billion by 2023.
“While visibility continues to be limited due to the impact of COVID-19, near-term demand remains strong, and secular trends driving increased SSD adoption will continue to grow the market,” said Jeff Janukowicz, research vice president for Solid State Drives and Enabling Technologies at IDC.
IDC expects increased demand from client devices, enterprise storage customers, and cloud service providers will drive growth of worldwide SSD industry revenue at a 2019–2024 CAGR of 18%. This, in turn, has prompted prices on some key electronics components to rise. DigiTimes, the tech industry news journal, reports insider sources predict NAND flash contract prices may increase by up to 40% through 2020, despite declining in 2019.
5 good procurement practices for a hard market
In light of the supply chain upheaval, best practices for component sourcing are more critical than ever. A handful of strategies, suggested by Source Today, can help you get ahead of the curve in terms of rising prices and potential storage shortages:
1. Get everyone involved.
Every part of the value chain, from design and pre-production to end-of-life management and product delivery, needs to be involved in planning and supply security efforts.
2. Create a lead-time agnostic supply chain.
Just-in-time inventory strategies are losing favor to other practices, such as vendor-managed inventory, that ensure parts arrive quickly and seamlessly. Procurement pros should consider both order and replenishment lead times.
3. Build strong vendor relationships.
As suppliers allocate limited components to a group of customers vying for available resources, it’s important to remain on the radar. Stay in close touch with critical suppliers to help ensure you get what you need.
4. Evolve product designs.
Procurement needs to encourage product design to consider component longevity and availability.
5. Eschew single source.
Although single-source parts are sometimes considered necessary, today’s market demands they are used only as a last resort. The ability to source from alternative qualified suppliers is a key capability in staying ahead of the shortages.
To summarize: In some ways, COVID-19 has brought big booms to the telecommunications and cloud computing sectors. In order to prevail, though, buyers need to apply smart sourcing strategies from one end of the supply chain to the other.
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