As manufacturers re-open after COVID-19 related lockdowns, economic and supply chain disruptions may be felt beyond 2020. How companies shift in the short-term and plan for the long-term will be factors in defining “new normal” for the component industry.
The pandemic caused the world to shut down quickly and, just as quickly, changed buying sentiment. For example, McKinsey & Company reported that demand in cloud and server computing sectors spiked as people started to work from home almost overnight. In contrast, demand for luxury goods plummeted.
“The automotive and cellphone industry have taken a hit as the world sits at a standstill,” said Luke LeSaffre, director of sales, Americas, at Fusion Worldwide. “People’s buying habits are focused on essential goods and services now because there is so much financial and employment uncertainty.”
As we approach the second half of 2020 and re-opening, some companies are shifting production to try to meet the new consumer needs while also mitigating the almost inevitable 2020 financial losses. In other cases, companies may move components to end-of-life quicker to offset waning demand with more profitable components.
Looking beyond 2020, there are a few areas that could see significant change. As companies look back to evaluate how to be better prepared for future shocks, increasing efficiency and flexibility may be the themes.
With factories starting up again, the “new normal” may result in permanently implementing the operational changes that were required to continue conducting business during the pandemic. For example, changes made to comply with work from home and social distancing mandates may continue as manufacturers see more benefit in keeping these changes for the long-term.
One such area is the use of robotics and remote monitoring, which has allowed companies to gain more control of their operations and processes. According to Omdia, by incorporating the use of automation in various steps of the manufacturing processes, companies have the ability adjust their production and shipping schedules immediately.
Diversification of the supply chain to avoid similar disruptions is another area to mitigate future risk. Because manufacturers often depend on a single region to produce components or a single product in a buildout, it has hindered their ability to weather the pandemic. This practice has resulted in multiple supply chain gaps, possibly resulting in far reaching impacts.
Paul Romano, COO at Fusion Worldwide, said, “With the technology industry, expect to see work done to help build foundations in other areas, like Vietnam, India, and the Philippines to support highly increased production. This, however, is a long-term solution and will be a challenging shift.”
The United States, in particular, is looking to jump-start the development of new chip factories throughout the country. The creation of cutting-edge factories in the U.S. could reshape the industry as companies’ source less from Asia.
However, it will be nearly impossible to eliminate the reliance on China in manufacturing – at least for the foreseeable future. The country’s size, raw material access and prominence is unparalleled. These fundamentals will prevent any large-scale shift away from China any time soon.
A medium-term tactic, however, is diversifying vendor partnerships. With reliance on an exclusive vendor and limited alternative products in builds, companies are left scrambling to fill shortages or reduce excess in tumultuous times. Mitigating this risk by having partnerships in the open market will make for a healthier supply chain.
Tobey Gonnerman, EVP of trade at Fusion Worldwide, says “The OEMs and sectors that approach the open market as a ‘last resort’ are the ones most severely impacted when supply chains are disrupted. Just like any financial planner likes to point out, if you wait until it starts to rain to start thinking about your rainy-day fund, then it’s too late. You’re going to get wet.”
While the COVID-19 pandemic has wreaked havoc on the world, many manufacturers will be able to benefit, in the future, by taking the lessons they’ve learned as an opportunity to enhance their supply chains.