It’s fair to say that economic turbulence over the past five years has correlated with the current global supply chain disruption.
Whether Brexit-related import/export challenges, or manufacturing slowdowns because of the pandemic, it has been a tough time for many businesses.
In 2022, significant issues remain with sourcing electronics parts due to the global semiconductor shortage, from automotive manufacturers and home electrical appliances all the way down to consumer PC gaming enthusiasts struggling to get hold of a reasonably priced GPU.
Meanwhile, with the Achilles Supply Chain Resilience Index raising concern over supply chain volatility for the next few years, decision makers in product development are facing the choice of sourcing alternative parts where available (often at higher costs) or shelving their project entirely.
Let’s take a look in greater detail at the reasons for this, and how you can further manage supply chain disruptions.
Key Factors in the Supply Chain Crisis
When COVID-19 first hit, there were countless factory shutdowns in Asia, with key ports such as Ningbo also closed, leaving a sizeable number of containers trapped in transit. At one point, as many as 71 vessels were waiting outside the Ningbo-Zhoushan port, with approximately 376 container ships in similar situations around the globe.
This increased congestion at the ports contributed to a backlog of containers. Depending on how long it took to load cargo onto a vessel (taking staff shortages into account), some containers would miss the cut-off and be left in the port until the next shipping vessel turned up.
There was also a reduced number of operational vessels. This was partly down to reduced staffing because of COVID and partly due to economic risk management from shipping companies.
The ripple effects of COVID are still being felt throughout the supply chain, as disruption continues across Asia.
Following an economically volatile few years, the UK economy rebounded more strongly than expected in Q4 of 2021, with nominal GDP growth reaching 1.5% (approx. 7.3% higher than the same period of 2020).
This growth, combined with an increased demand for goods following the pandemic, has led to demand far outstripping production, impacting the supply chain as a result.
Following Brexit, the UK faced a shortfall in HGV drivers, which was further compounded by COVID. In October 2021 for example, it was estimated by the Road Haulage Association (RHA) that the UK was experiencing a shortage of 100,000 HGV drivers, leading the UK Government introducing temporary visas for EU drivers.
Since then, the HGV shortage has begun to stabilise, but shortages remain. Add to the fact that shipping costs have increased as much as seven-fold, and you can begin to see the wider impact that these factors are having, not just in the UK, but upon the global supply chain too.
Tips for Managing Supply Chain Disruption
It’s an undeniably challenging environment for product development right now, but there are steps you can take to both anticipate and manage supply chain disruption.
Supply chain software firm, anyLogistix identifies three key areas you need to focus on in order to bolster your supply chain resilience: Visibility, Analysis, and Planning.
Essentially, it boils down to the simple principle of using data intelligently to plan and predict potential areas of volatility. If you’re agile enough and plan accordingly, you can manage the risks associated with a volatile supply chain.
Here are a handful of tips to help you get prepared.
1) Conduct a vulnerability assessment
Undergoing a vulnerability assessment will assess areas of potential weakness in your supply chain planning and put processes in place to help mitigate risk.
Planning can only be a good thing – especially when it comes to procurement – so if you haven’t already incorporated a vulnerability assessment of your supply chain as part of a wider risk management strategy, then it’s strongly recommended.
2) Keep an open dialogue with your CEM and be adaptable
Try to maintain positive relations with your CEM (Contract Electronics Manufacturer) and keep channels of communication free and open.
You may need to be flexible depending on the availability of parts at the time of manufacturing. A positive relationship with your CEM will help get you the best deal possible.
3) Take advantage of forecasting
Market research, both past and present, will allow you to make more accurate predictions about supply chain volatility. It will also help you plan cash flow forecasting accordingly, ensuring that disruptions aren’t as damaging as they could be.
This information is instrumental in the crucial stages of product development – especially with volatile commodity pricing and scant availability of microchips.
4) Alter your procurement methods
Be mindful of where you source your supplies and seek to develop both deeper and wider supplier relationships.
Diversifying your supply chain spreads risk more thinly, protecting your ongoing project from material scarcity.
5) Consider design for availability
Be flexible and open-minded about the technology in your product. You may need to adjust the Bill of Materials (and potentially the budget) accordingly, depending on the availability of parts.
Design for availability is a great option because it bases your technical design on availability of parts, keeping the project moving through the various stages of product development – rather than grinding it to a halt when parts are unobtainable. It also helps avoids costly redesigns and manufacturing issues.
Here’s how we helped a UK-based telecommunications company beat the semiconductor shortage with a design for availability project.
6) Invest in technological solutions
Depending on the size of your business, and the expected volume of production, ERP software and similar tools that monitor inventory can deliver greater visibility in the supply chain, enabling you to predict potential areas of volatility and react more quickly.
This might not be as relevant if you’re building a hobby project, or plan to manufacture at very low volume. However, for those in consumer-grade product development, who plan to make revisions and ship high cost/high quantity items, an inventory management system is a must have.
Future Supply Chain Trends to Monitor
War in Ukraine
The ongoing war in Ukraine continues to have an impact upon the supply chain – especially because 90% of neon, which is primarily used in chip lithography, originates from Russia. According to Dun and Bradstreet:
‘A likely disruption of trade routes, rising freight costs, inaccessibility of critical raw materials, and wide disruption to businesses threaten to derail global economies while adding to inflationary pressures. In addition, potential rate hikes may further exacerbate rising manufacturing and production costs – leading to higher price tags for end-user goods and services.’
Connectivity & Data-Driven Planning
As discussed, investment in technological solutions will continue to become even more vital aspects of supply chain management whether it’s ERP, or simply an inventory management system. Richard Howells of SAP, wrote it best in Forbes, commenting:
‘As we design, manufacture, and deliver smarter products, we are generating unparalleled amounts of data. Using this data, people can determine how products, equipment or vehicles are performing, measure carbon emissions, see if they require maintenance, and so much more. Add to this the improved demand and customer data available from sentiment analysis, and social media, and environmental data such as traffic and weather patterns, and we have a real-time, 360-degree view of the supply chain.’
Richard Howells, SAP
Automation has long been on the agenda for the manufacturing sector.
But with COVID-19 impacting the workforce due to illness and isolation absences, businesses have begun to invest more heavily in automation as a means to manage supply chain risk.
In fact, the global automation market is expected to soar from £155bn in 2022 to approximately £300bn by 2029.
Shipping costs are going up and commodities are increasingly scarce, so managing supply chain disruption is essential – especially in electronics design projects.
Strengthening supply chain resilience by diversifying your procurement channels, developing stronger supplier relationships, and ultimately, being open-minded about your Bill of Materials are good places to start.
This article was researched and written by Marketing Executive John McCrea, and aided with the knowledge of Sadia Safdar, our Sales Executive, who has a rich background working in supply chains.