One Year Later: How the Electronics Supply Chain Has Adapted to COVID

Last year, electronics manufacturing hubs in Southeast Asia and EMS companies in the US went into major lockdowns as governments struggled with their response to the coronavirus outbreak. Fast forward to today, COVID-19 is still with us and will be for some time. The rest of society has adjusted to living with COVID-19 and we’ve entered a new normal as the larger economy has largely reopened.

Although there is always some uncertainty around COVID-related matters, we can be sure of one thing: the pandemic has accelerated some pre-existing trends that were emerging in the electronics industry. Pushing non-essential and back-office staff into remote positions has forced both a digital change in organizational processes and the way data is passed throughout the supply chain. Here’s how these factors have changed digital supply chain management and the electronics supply chain itself.

Recent COVID-Related Supply Chain Developments

You don’t need to be Foxconn to see the effect of economic shutdowns on electronics manufacturing capacity and component sourcing. COVID-19 is a black swan event that has revealed unacceptable risk involved in just-in-time sole-source global supply chains for electronics components and production capacity as a whole. As a result, it’s played a key role in driving some trends that were already occurring in the industry:

• Nearshoring and onshoring. Even before the coronavirus outbreak, there was plenty of nearshoring and onshoring talk throughout the industry. Production capacity and component orders shifted between China and elsewhere in Southeast Asia in the early months of the pandemic, but more American companies are actively shifting production away from China. Two prime candidates that are friendly to US interests are India and Vietnam.

• Digital transformation. Today, this term has become a bit of a buzzword, but many organizations inside and outside the electronics industry were engaged in digitizing all aspects of their operations, including supply chain management.

• Diversified sourcing. In the early days, when Chinese production capacity was greatly decreased, OEMs and EMS companies had to cobble together component orders from a variety of sources. The Chinese shutdowns created lead times extending out months, and now these companies are seeing diversified sourcing as the norm rather than the exception.

According to a recent survey study from supply chain management firm Jabil, electronics companies understand the realities of the situation and are taking concrete steps to reduce their risk. These steps can help maintain today’s production capacity and inventory, as well as keep companies resilient against future supply chain shocks.

COVID-19 is clearly cited as a major factor impacting supply chains.

Here we can see a clear trend towards risk reduction through diversification or all-out onshoring. Picking up shop and moving production back home is no easy feat, and companies like Apple have opted to keep operating in China to take advantage of a growing market. Although not everyone is so keen to move production outside China, there are other factors driving change in the electronics supply chain.

Government Investment in Local Production

In the US, we saw a form of local investment through invocation of the Defense Production Act (DPA) through the first ~3 months of the pandemic. Then on June 12, 2020, the New York Times reported US lawmakers were pushing to invest $22.8 billion in new production capacity for semiconductors as part of onshoring efforts. The Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS for America Act) bill would later be signed into law by President Trump.

These investments aren’t limited to the US. The Indian government also proposed $6.7 billion in subsidies to encourage chipmakers to establish national supply chains, which already comes after the country was using military aircraft to airlift components into the country from China. Taiwan also launched a program to provide $335 million to convince foreign electronic components makers to build new R&D facilities on the island. These efforts underscore the ongoing motivation to geographically diversify production capacity or onshore it totally.

Adaptable Designs

A new trend in reducing supply chain risk is on the component side, where PCB designers can create products that don’t rely on a single component for critical functionality. Instead, placing a focus on a range of equivalent components from different manufacturers makes a design more resilient to supply chain chaos. Whether this means having more variants with different components, or a single design with swappable components, companies need access to a wealth of technical data on-demand for this to be feasible.

Digitized Supply Chain Management

Digitization in the electronics industry is about much more than video conferencing apps and upgrading ECAD tools. Enterprise supply chain and PLM solutions are not new, but greater innovation has focused on supply chain management tools. The COVID-19 pandemic has prompted a new wave of digitization within the electronics sector, including AI-enabled component management. Suppliers, manufacturers, logistics firms, and even small service bureaus now have access to a greater range of tools for supply chain management and sourcing.

Beginning 2021

The electronics industry did well during 2020, despite reduced consumer spending, and found itself in the “exponential” portion of the growth curve at the end of 2020. At the beginning of 2021, there are still critical IC shortages for automakers, MLCC shortages for wireless products, and fear of new shutdowns given the record number of cases in the US and elsewhere. For this reason, don’t expect manufacturers to onshore anytime soon. With a new US administration in office, it remains to be seen how trade policy will evolve and whether there will be a new drive towards onshoring by the Biden administration.

Although there is uncertainty on the political side of the supply chain, the technological side is clear: digitization that was already occurring before the pandemic has helped companies in all industries weather supply chain volatility. We can expect digital transformation to continue at all levels coming into 2021.

What a Digitized Electronics Supply Chain Looks Like

The digital transformation in supply chain management is already underway, with developers building new platforms to handle the wealth of electronics supply chain data more efficiently. Enterprise-level supply chain management systems need to have a specific set of functions to create value and help reduce risk:

• Integration. Enterprise supply chain solutions should easily integrate with new or existing management tools. This includes analytics tools, which were cited in the Jabil study (see above). 

• Auditability. Component tracking through the supply chain and the ability to verify these data help build trust and reduce risk. Technologies like blockchain are already playing a role in this area. 

• Scalable. Digital supply chain solutions need to scale to any number of vendors and customers.

• On-demand data access. The ability to grab data on-demand through an API is a central part of a digitized supply chain. Aggregators are a great resource of data of SaaS platforms in supply chain management.

If you’re developing supply chain management solutions, Octopart provides all its aggregated supply chain data through its REST API. If you’re sourcing parts for your next design or production run, you can get a complete view of the electronics supply chain with Octopart’s advanced search and filtration features. Octopart provides everything electronics companies need to stay ahead of supply chain fluctuations and lead the digital transformation in supply chain management.

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