Estimated reading time - 5 min
The world of the electronics supply chain has experienced one crisis after another: there’s been the MLCC (multi-layer ceramic capacitors) crisis, the memory crisis, the logistics crisis, the silicon component crisis, and the next one on the horizon is very likely another memory crisis. Each time, the story is the same: a component, central or otherwise, runs out. In and of itself, a component may be an infinitesimal portion of the final product – a grain of sand that jams the machine – but can nonetheless lengthen and complicate production and delivery times.
In contrast to this succession of crises, in recent years we have seen market needs fluctuate with great volatility, which can turn around in a matter of weeks, along with dizzying variations in demand. To take just one example from the crisis: internet equipment. Demand for connectivity exploded with the confinement due to the COVID-19 lockdown. However, from the day the restrictions were lifted, demand dropped sharply. With production and delivery times unable to keep pace, the whole chain seized up, resulting in a myriad of problems: overproduction, storage problems, unsold products.
How can unchanging production constraints be reconciled with this new market volatility? Is the supply chain of technology companies condemned to endure ups and downs and play catch up with the market? Or, does this dynamic organizational challenge present a valuable opportunity for those who know how to take advantage of it? While it requires exceptional diligence and deciveness, it’s an opportunity for companies capable of managing their supply chain flexibly and resiliently, and practicing operational excellence, to gain a very strong competitive advantage.
At the height of the silicone component crisis, it took more than 55 weeks from order to delivery of a technological product to the end customer. Demand, on the other hand, could collapse overnight. This glaring imbalance alone would be enough to panic any prime contractor. When it comes to choosing an industrial partner, to ensure continuity of supply and services, the client company must look at supply chain agility in the same way as product quality, design or cost. For an offer of equal value, this becomes a major differentiation criterion.
To withstand these new market conditions, the solution lies in the quality, shared visibility and timeliness of information. In an extremely complex and fast-moving supply chain, speed and clarity are paramount tools with which we can assess what is really happening in the field. At any given moment, you need to have a clear view of the stocks of each component, raw materials and finished products, the capacities of each production line, current problems, supply lead times, etc. On paper, this is simple; but in reality it can be particularly tricky. Agile supply chain management requires considerable expertise and state-of-the-art tools. Information must be accessible in real time. Learning of a supply shortage, saturated storage capacity, or the shutdown of a line with only a few days’ delay can have a devastating snowball effect on production and delivery times.
Furthermore, supply chains need to have resilient and flexibile manufacturing and delivery. One key element of this necessary supply chain robustness is flexible manufacturing – a method of production designed to easily adapt to changes in the type and quantity of a product. One implementation would be strategically building factories in locations closer to the customer. Doing this would make logistical issues less likely as the supply chain becomes streamlined. Tactics like these help ensure supply chains are able to function optimally, even with changing levels of production.
The financial dimension must also be taken into account in this real-time control. All direct and indirect costs (storage at a given point in the chain, variations in component costs, impact of line under-utilization, etc.) influence the final product price and/or margin. Any operational decision can only be a good one if time and cost parameters are known, controlled and not assumed. This dual real-time operational and financial control is a decisive factor in a technology company’s resilience.
Finally, the environmental impact of the supply chain also needs to be taken into account. Here again, the quality of information is crucial. By anticipating the carbon footprint of one route or another, informed choices can and will carry more and more weight. This has a value for the planet and a value for the customer.
Talking to customers, and depending on the sector, we understand that the quality of a supplier’s supply chain can account for as much as 15-20% of a customer’s purchasing decision. Today, the company with the best control over access to its information flows and the ability to operate them with agility will be the big winner in the supply chain tug-of-war. It will be the one best able to anticipate market imperatives and bypass the obstacles that will inevitably stand in its way.
