Pandemic-related factory closures, national lockdowns, fluctuating demand and labour shortages have wreaked havoc on supply chains and lead times across various industries — particularly those which rely on supply from China and the Far East, where the impact of the virus was first felt.
And COVID-19 is not the only thing that has rocked global supply chains. Accelerating climate change has increased the frequency of extreme weather events that threaten to disrupt already fragile interdependent shipping networks. Plus, Brexit legislation came into force on 31 January 2021, prompting the mass exodus of EU workers and causing further bottlenecks at borders as companies navigate additional requirements.
Experts predict that the consequences of recent events will continue to impact global supply chains into 2022. Still, so long as the COVID-19 pandemic does not worsen significantly, things should start looking up…
An end in sight for the semiconductor shortage
The recent chip shortage — triggered by COVID-19 and increased demand for electronics — has caused problems for several industries, especially consumer electronics and automotive manufacturers.
According to the Semiconductor Industry Association, chip sales were up by 26.2% in May 2021 compared to the previous year, as more organisations underwent digital transformations and businesses and consumers invested in technology to facilitate remote working.
However, the majority of chip production happens in Taiwan, China and South Korea. As coronavirus first gained a foothold in East Asia, the pandemic has caused ongoing delays in chip production, significantly increasing lead times for suppliers and end-consumers.
Although it may be some time before we begin to see significant improvements in the semiconductor shortage, organisations and governments are planning to boost chip manufacturing capacity regionally and globally to help manufacturers meet growing demands.
Taiwanese semiconductor giant TSMC is investing $100 million (around £72.5 million) in additional capacity to address the chip shortage over the next three years. And the European Commission announced plans to introduce a ‘European Chips Act’ as part of efforts to improve ‘tech sovereignty’ in the region earlier this year.
Price hikes will begin to soften
The cost of materials, components, labour and transportation have continued to rise with inflation and the demand for electronics throughout 2021.
Due to unprecedented competition for containers and reduced capacity, freight prices have spiked, further compounding price hikes along the supply chain. Plus, businesses face the additional administrative costs of Brexit paperwork and logistics — all while managing the labour shortages affecting almost every sector.
Hapag-Lloyd AG, a German international shipping and container transportation agency, placed a record order of 75,000 shipping containers to help ease shipping congestion, and Chinese container factories are working flat out to keep up with demand.
Still, prices are not likely to come back down until 2022. However, there are hopes that the incline in shipping rates will slow during the post-pandemic period. Factories will begin to ramp up their output, more materials will be extracted, and transportation backlogs will ease and shorten lead times.
Shortages and disruptions also revealed the flaws in western nations’ dependence on resources from China and other eastern distributors for supply chain security. As such, governments and organisations are strengthening local manufacturing and infrastructure to support supply chains in the modern world.
In the UK, for example, a brand new ‘gigafactory’ is set to bolster local production of electric car batteries, and the government has also announced £53 million funding to promote digital tech in the region. And in the EU, the European Investment Bank (EIB) signed a $350 million loan agreement in 2020 to support a new gigafactory in Europe. Northvolt Ett is located in Sweden and will harness clean energy to produce lithium-ion battery cells with an 80% lower carbon footprint than those made using traditional methods.
Mitigating threats to supply chain security
Electronics manufacturers depend on global shipping and transport networks for essential materials and components. So, preparing to weather the upcoming supply chain crunch has become a crucial consideration for every business.
Encouraging sustainable manufacturing is a massive part of this. Natural resources are in finite supply, and ever-increasing human activity worldwide is only making the situation worse. Manufacturers must refocus on sustainability to align with net-zero targets, which will, in turn, have a positive impact on supply chains.
Many OEMs and EMS are taking steps to improve sustainability, including becoming more energy-efficient, reducing waste, embracing digitisation and automation and optimising supply chains — all of which reduce costs and diminish carbon footprints.
Labour shortages are also causing problems across most sectors, as businesses experience the knock-on effect of coronavirus outbreaks and Brexit regulations. So, the electronics manufacturing sector must encourage training and education within organisations to help address the skills shortage by introducing courses such as IPC’s ‘Electronics Assembly for Engineers’ to tackle skills gaps within the industry.
Reinforcing every element of supply chain management will be crucial to guarantee the industry can keep pace with the growing demand for electronics as manufacturers, suppliers and customers transition away from survival mode and prepare for long-term growth.
We are dedicated to reinforcing robust, sustainable and adaptable supply chains to minimise disruption for our customers. To learn more about our services, get in touch with our team today.
