The global electronics value chain has faced multiple challenges in recent years. However, the disruptions are also opportunities for companies to improve their sourcing process and create a more well-organized market, according to Supplyframe.
Founded in 2003, Supplyframe has developed a global Design to Source Intelligence (DSI) network supporting manufacturers, suppliers, and distributors in the electronics supply chain. Its system engages with over 10 million professionals each month.
Headquartered in the US, Supplyframe has acquired customers in the high-tech manufacturing, automotive, and medical devices sectors, such as General Dynamics, Jabil, and Molex. The company recently became part of Siemens AG, which announced its acquisition in May 2021.
Manufacturers are engaging more with suppliers
Supplyframe sees billions of signals in the DSI network every month, including components search activities and transactions. It also witnesses changes in the electronics supply chain due to the ongoing disruption brought by the trade war between the US and China, the COVID-19 pandemic and the Russia-Ukraine conflict.
Richard Barnett, Supplyframe’s chief marketing officer, said manufacturers and OEMs now interact with suppliers more often. They used to do sourcing once a year or every six months, while contract manufacturers and ODM companies generally go to the market every one or two weeks. With the supply shortage and uncertainty continuing, major manufacturers now act more like ODMs and engage with suppliers more frequently.
The change is likely to help the market become more efficient, Barnett said, because suppliers will have constant updates from customers about lead time or production volumes.
“They can better allocate supply to demand and plan their new product introductions with more accuracy,” Barnett said.
On the other hand, the CMO said supply chain disruptions have pushed more enterprises to sell inventories that they acquired for products they had planned to produce, booming the gray market.
For instance, a company has acquired 98 of the 100 components needed to make a product. However, after months of waiting, the rest two pieces are still unavailable. Eventually, the company decides to give up the product and sell off those parts it has been holding.
Barnett said that unexpected sell-back is one of the reasons why the recovery of supply is nonlinear. When companies adjust production plans and release excess supply, it will create a little market stabilization for a short time. But the market will become constrained again.
Increase resilient design to sustain supply chain crisis
Because of the worldwide chip shortage, Supplyframe has been assisting more companies in sourcing parts or alternatives to redesign existing products. Barnett said businesses need to increase resilience at the point of design to sustain the ongoing supply chain disruption.
The CMO added that traditionally, engineering teams focus on building designs that reach the goals of reliability, quality and key capability. They were often never measured by whether the design could meet the manufacturing needs. The issue was left to the procurement or supply chain teams.
However, 60 to 80% of a product’s lifecycle cost and risk are set during the design phase. When the supply chain faces tremendous uncertainty, resilience in design is much more critical. Therefore, Barnett said companies need to change their process and evaluate the health of a product’s design differently.
Companies are rethinking their strategies. For instance, some are considering building at a smaller scale rather than a big project that will run for months. Barnett said the new and transformational thinking would vary by industry due to every sector’s diverse nature.
In addition, disturbances in supply chains remind companies of the importance of outside intelligence.
“Companies need to get curious about how they learn and understand all the things occurring in the market rather than relying on their history of what they’ve done before,” Barnett said.
The need for new forms of market insight has never been more important than now because of the global component shortage and the overall complexity of product design.
Barnett also suggested companies add risk-sharing schemes in agreements with supply chain partners. He said many relationships between contract manufacturers, OEMs and suppliers have overly focused on costs and manufacturing value added (MVA) rather than strategic inventory buffer programs.
For example, the automotive industry has concentrated on Just In Time (JIT) and Just In Sequence (JIS), driving cost efficiencies across every aspect of supply chains. That is why manufacturers gave up their forecasted demand when the pandemic hit and suppliers let go of the inventory, resulting in significant car production disruption.
Barnett said companies can’t only think about cost optimization and efficiency when in a crisis. They need to invest in inventory through risk-sharing and long-term agreements to mitigate risks.