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Electronic Components Shortage : Preparing Your Supply Chain for the Bullwhip Effect

Nearly every company has been impacted by the global electronic components crisis. The supply chain imbalances that started due to consumer demand fluctuations have been amplified thanks to the bullwhip effect

For example, foundries are currently unable to produce chips fast enough to cope with the surge in demand. This has led to global shortages that have now trickled down to most industries with wait times for new chip orders stretching to mid-2022. 

When supply chain instability rears its ugly head, disruptions can be catastrophic. For OEMs and EMS, having a volatile supply chain is inconceivable because it results in inaccurate forecasts, expensive production delays and inventory risks. Preparing a framework in advance — and sticking to that framework — can help you navigate the supply chain risks with greater ease.

There is no magic wand that can wipe away supply chain headwinds. While companies can’t control the current crisis, they can take action to mitigate the risk and impact of supply chain disruption.

These four tips can help you be more prepared to mitigate supply chain risks effectively. 

Electronic components

 

Rebalance the supply chain

Internal rebalancing of the supply chain involves implementing risk management strategies to respond to disruptions. That calls for finding the right balance between global sourcing, long- term contracts, and regional sourcing for certain components. More critical is to evaluate and address current shortages and use what-if scenarios to analyse and plan for the future. 

You don’t have to look far to find manufacturers trying to rebalance their supply chains. Broadcom, a leading chip maker, is currently rationing chips to help its clients stay afloat amid the shortages. Similarly, Samsung has been using its internal supply chain management capabilities to rebalance production and minimise the impact of the global chip crunch.

By working both internally and with suppliers and customers via an integrated supply chain, these companies have been able to rebalance their chains by diverting manufacturing capacity. 

OEMs Companies can also leverage collaboration outside their organizations to stabilize their supply chains and create competitive advantages. More specifically, collaboration and coordination between branches can help facilitate effective information sharing and exchange of inventory to respond to shortages. 

For instance, if your supply chain is experiencing shortages due to missed or delayed orders, don’t wait until it’s too late before taking action. Get in touch with your branch managers as quickly as possible, and see if you can get components from your other divisions or subsidiaries. Doing so helps ensure that all your divisions are in sync and rebalance the supply chain. It also gives you better control to identify risks in advance and respond to disruptions faster and more effectively.

 

Build more flexibility and agility into the supply chain

It is important to increase your flexibility as much as possible, both in terms of production deadlines and also in terms of demand with your customers. For instance, by adopting innovative technologies such as automation, predictive analytics and machine learning (ML), manufacturers can optimize the production process to be more efficient and responsive to demand. This could involve leveraging technology to better predict supply chain issues well in advance, thus preventing production delays. 

In addition, companies should create strategic supply chain teams, tasked with diffusing risks in the event of severe threats and supply interruptions. As the first line of defense when issues arise, they should constantly assess risks and collaborate closely with planning, procurement, and other departments to develop the firm’s response strategy. 

 

Consider relocating production

This is obviously a long-term solution since relocating foundries takes years. With the help of government, manufacturers can bolster domestic manufacturing capacity to minimise supply chain disruptions. The pandemic revealed how the decline in chipmaking wasn’t only about jobs and regional economic impacts, but also had strategic implications at a global scale. As a result, the U.S government stepped in to help the electronics industry untangle the supply chain and increase chip production. The Biden administration clearly sees the semiconductor crisis as an opportunity to compete with China, in part by subsidizing semiconductor manufacturing.

Similar efforts have also been made by other nations, including China, Japan and South Korea. China, for instance, is investing $150 billion in its domestic semiconductor industry to reduce reliance on imports and US technologies. Japan is offering incentives to overseas companies to secure its own chip supplies. South Korea has also announced plans for its critical semiconductor industry by offering financial incentives and tax benefits to components manufacturers. 

For OEMs and EMSs, relocating production, though expensive and time-consuming, is about meeting domestic demand by shortening the supply chain. This approach aligns with just-in-time models, where taking advantage of scale and scope drives efficiencies and lower costs. Government support sure does help to reduce costs but building a supply chain at home is critical. For instance, Intel recently announced the launch of a new business Intel Foundry Services, to meet the demand for automotive manufacturers. Samsung is also planning to move its Samsung Foundry production facility to Pyeongtaek to increase capacity to supply chips in the next several years.

Increase collaboration across the supply chain

In light of increasing global supply chain uncertainty, companies should enhance collaboration. Fostering long-term relationships and collaboration with strategic suppliers can help manufacturers secure the supply chain, avoid bottlenecks and stay updated on capabilities. Strong relationships also pay additional dividends in the form of shorter replenishment cycles for crucial parts amid shortages.

Overall, risks such as the global chip crisis should be monitored and mitigated to ensure that the supply chain is resilient and does not suffer shortages or overstocks in future.

AIRENC believes that creating a circular economy is critical to achieving supply chain resiliency. A circular economy focuses on eliminating waste (e.g. electronic waste) and keeping electronics in the value chain at their highest value for as long as possible. The goal is to promote collaboration among supply chain partners to increase information sharing and maximise the value of electronic components. Doing so will not only satisfy market needs better but also enable manufacturers to be better prepared for future events. 

AIRENC empowers OEMs and EMS to move towards circular business models where instead of scraping obsolete or excess inventory, companies can resell them on a community-based transaction platform at competitive prices. This helps you reduce environmental impact, and it increases profit margins and minimizes supply chain disruptions.

Learn more about AIRENC approach to circular economy and how we can help you achieve supply chain resiliency. 

Published: Aug 23, 2021

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It's Time For A Smarter Supply Chain

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