As 2021 draws to a close, it’s certainly delivered a variety of unprecedented challenges that have created the perfect storm for the manufacturing industry, writes Michael Ackers, Director of Business Development at Sanmina.
Demand-supply imbalances and competition for basic materials have become a major issue, particularly when it comes to semiconductors. More products are using semiconductors to make them smarter and connected to the Internet of Things (IoT), whether it’s cars, home appliances or clothing. Pandemic-related lockdowns have also pushed demand for electronics like laptops, phones and internet routers, as more employees began working for home.
In addition, automotive companies who originally expected car sales to plummet due to COVID-19 cut their forecasts, but the opposite result turned out to be true as government entities flowed cash into economies. There were no forecasts for this surge, making it difficult for semiconductor companies that serve automakers to keep up, especially with only a few wafer fabs available to outsource production. Big chipmakers are mitigating the issue through consolidation and by establishing new fabs closer to their headquarters in the US and Europe. But alleviating the problem won’t really take hold until these new fabs come online in the second half of 2022.
Increasingly complex logistics are further complicating matters. Materials, components and products are backed up as a result of reduced freight plane traffic and crowded ship ports that have led to increased freight costs. Lack of accessibility to containers needed to ship products is also compounding the problem.
And finally, the pandemic’s ripple effect continues to cause outbreaks and factory closures across different regions. While enhanced business continuity programs and protocols are making these closures more of a hiccup, their impact is still felt in an industry with very long supply chains that are under pressure from several other external factors. Add to the mix extreme weather events such as floods that are increasing on a global scale and you’ve got multiple factors now threatening and disrupting global supply chains on a regular basis.
Re-architecting sourcing processes
With all of these issues, there’s no doubt that increasing competition for resources and supply challenges will continue to be a major theme in 2022. Manufacturers that continue to adhere to just-in-time manufacturing and single sourcing will be the most fragile, as even a minor disturbance to the supply chain will dramatically impact their operations.
What’s needed is a different approach that takes into account all of the disruptions that have occurred over the past several months. It requires a move away from practices that no longer optimally serve a business and creating a more sustainable approach to supply chain management.
This includes multi-sourcing as many products as possible, taking advantage of supplier managed inventory programs and building up stock, either at the finished or semi-finished good level, to be better prepared for disruptions. While there are upfront costs associated with stocking items and multi-sourcing vendors, the OEMs that are practicing this today are seeing the benefits during these extreme times of stress.
When possible, maintaining a shorter supply chain is also an important way to reduce overall lead times during emergencies. Even if certain components can’t be sourced locally, some materials that go into products can be obtained closer to home. Beefing up forecast management processes and thoroughly analyzing every item on a bill of materials and where it can be sourced for each product also makes it less likely that drastic last minute changes will be needed.
While major supply chain changes for existing products would require full product redesigns, developing a new strategy for future products can also help manufacturers gradually re-architect their supply chain practices. During the NPI design process, design teams at manufacturers like Sanmina work very closely with their supply chain management and component engineering teams to determine the right materials to use. The teams structure a bill of materials (BOM) and approved vendor list (AVL) with parts that, to the best of their knowledge, don’t have end-of-life (EOL) problems or supply chain constraints. A lot of forethought must be put into choosing the components that go into a design to ensure that you’ve got the best shot possible at maintaining a supply on those parts.
Embracing change
While risk can never be completely reduced to zero, embracing a new way of thinking about supply chain management can ensure a competitive advantage that helps manufacturers continue delivering product during times of stress. Every manufacturer needs to take into account what’s occurred over the past several months and be prepared with multiple alternatives so that they can continue delivering products to their customers. What worked for the market a few years ago is no longer effective and a more sustainable approach to sourcing will be the key to continued success in 2022.