By Grant Portman, Key Account Manager, Whistler Technology, a Milexia Company
If there is one lesson that COVID-19 taught us, it is the importance of planning for the unexpected. For the electronics components industry, this means adopting a flexible supply chain sourcing model to respond quickly to unforeseen challenges.
Following the global semiconductor shortage, governments and organisations around the world rushed to fix their supply chains and prevent future severe disruptions. However, the reality is that achieving complete stability is impossible. Organisations must avoid the trap of focusing solely on past demand, as today’s needs could be entirely different from those of tomorrow.
Any increased tension can quickly disrupt supply chains, pushing manufacturers to look for alternative sourcing with very little advance notice. The geopolitical impact of the Russia-Ukraine war, for example, would have been impossible to predict and created supply chain shock waves across the electronics components industry. From transportation issues and trade restrictions to the shortage of raw materials used in semiconductor manufacturing. This was yet another unforeseeable blow to the electronics industry.
We live in a highly volatile world, influenced by various geopolitical and economic factors that affect different industries in diverse ways. It is crucial to have flexible procedures in place that allow for the rapid sourcing of hard-to-find and obsolete components.
Managing the rise and fall of supply chain demand
Maintaining a surplus of stock can only carry an organisation so far; it will never be entirely sufficient. The over-ordering of stock may seem like a good strategy, but the counter consequences, including higher storage costs, holding costs, and the risk of inventory obsolescence, will stack up (literally) and become more detrimental in the long run.
This was identified and named the ‘Bullwhip Effect,’ when, as a result of COVID-19, consumers and suppliers reacted and overreacted to anticipated supply and demand, causing inventory disruption across the supply chain. An MIT Sloan Management Review study found that the bullwhip effect can increase inventory costs by up to 10–30%. The fact is, the speculative view from customers, suppliers, and manufacturers about supply and demand can often be very inaccurate, especially in reaction to a disaster or unforeseen circumstances. Yet, all actors involved influence the entire value chain and cause forecasting chaos.
For certain industries, such as aerospace and defence, which have long and varying production cycles, managing the lifecycle of products is ever more complex. There are continual challenges in ensuring that procedures are established for when components reach the end of their lifecycle.
If we take the example of the aerospace industry. The lifespan of an aircraft can last several decades, yet the internal components for these aircraft systems, including semiconductors and mechanical parts, have much shorter life cycles. The prolonged operational lifecycles of military aircraft, in parallel with rapid technological advancements and reiterations, create a dynamic landscape where components risk obsolescence before the end of an aircraft’s service life. This requires organisations in the aerospace industry to adopt a ‘two-speed’ product lifecycle framework that qualifies all component aspects occurring during the complete lifecycle of the system but with flexible replacement procedures for when essential components with short lifecycles become obsolete.
In both the case of organisations that have fallen into the trap of the bullwhip effect and for organisations with complex product lifecycle requirements, the need for emergency and quick turnaround for obsolete products becomes further intensified.
So, the question is how organisations can most effectively implement a flexible and reliable electronics sourcing model that accommodates all eventualities and challenges: fluctuating market demand, volatile geopolitical circumstances, emergency scenarios, and complex multi-tier product lifespan requirements. It involves establishing and maintaining a dependable, end-to-end value chain, and there are four crucial steps to follow:
Creating a reliable end-to-end value chain
1 Select the right supplier network
This involves thorough research to identify and qualify the right value-chain network. A total network of suppliers, vendors, and industry partners that have the expertise to:
- help with sourcing standard and specialised parts
- offer engineering design, maintenance, and industry-specific services
- has the capacity and flexibility to handle an emergency, obsolescence, and a quick turnaround sourcing requirement
2 Improve forecasting and visibility across the value-chain
Implement proactive and predictive tools and methodologies to predict and monitor potential obsolescence issues and forecast demand patterns accurately. The best scenario is for organisations to invest in advanced analytics, and artificial intelligence (AI) to more accurately and proactively handle demand fluctuations.
Alongside this, organisations should implement electronic data interchange visibility throughout the value chain to facilitate the exchange of inventory and order data between partners and to enhance communication channels.
3 Collaboration between suppliers
Successful value-chain management relies on building reliable, collaborative relationships with suppliers. Open communication channels, regular feedback, and joint troubleshooting drive innovation and create a foundation of trust across the value chain.
4 Continuous monitoring of supplier performance
Real-time data collection and analysis should be used to track supplier performance against KPIs and identify areas for improvement. Ongoing monitoring and analysis of supplier performance data ensures organisations can troubleshoot and proactively address any potential issues or performance gaps to mitigate risks in the supply chain before they become a problem.
Essentially, what any organisation in the electronics industry should be looking for is one total end-to-end value network that can cover and understand all their sourcing needs, with the versatility and flexibility to adapt to anything on the horizon. In uncertain times, with the lingering effects of past supply chain disruptions remaining challenging, organisations, more than ever, must prioritise risk preparedness and resilience in their electronics sourcing strategy.
