Front End I Electronic Components Supply Network One year on…
It’s only a year since the UK’s fi rst population lockdown, but it feels like a lot longer ago than that. According to Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn) his members and their customers across the UK electronics industry have proved to be remarkably adaptable and resilient during the COVID-19 pandemic. In this article Fletcher reviews some of the key changes that the last twelve months has forced on our domestic industry and considers what challenges the next twelve months and beyond may bring
Back in January ’20 the world watched with horror and trepidation as Coronavirus began to propagate. Would this new virus spread beyond China? What exactly did scientists and politicians mean by terms such as epidemic, pandemic, social distancing, and lockdown? Could it even affect the global supply of goods? The answer to these concerns quickly became apparent as what started as a localised outbreak of disease in China rapidly escalated into an epidemic and on to become a truly global pandemic.
Supply problems?
Over the past twenty years China has established itself as the dominant supplier of components, sub-assemblies and finished goods to many international organisations. Many large international manufacturers are reliant for both their primary and secondary sourcing on goods produced by Chinese manufacturers. In the latter months of 2019 supply problems in the global electronic components supply network were only a worry for a handful of Tier 1 customers whose production output is dependent on international JIT shipments direct from the manufacturer. The majority of customers are supported by manufacturer authorised distributors, who saw little to worry about at the start of the emergency. Minimal disruption was expected as authorised distributors profile their inventory in line with their projected customer demand and generally hold sufficient inventory to satisfy between 8- to10-weeks average local demand. In the UK and Ireland in Q1’21 authorised distributors were holding inventory levels nearer to 12- to14-weeks average use because they had increased their stock holding in the last quarter to “buffer” their customers against any supply problems that the looming December ’20 Brexit deadline might throw up. In the event this extra inventory wasn’t called upon, which proved very fortuitous a few months later. China responded quickly to the Coronavirus outbreak with a draconian population lockdown. Whilst the supply of electronic components was disrupted for
10 March 2021
a few weeks due to population lockdown and expedient factory closures, Chinese electronic components manufacturers were quick to adapt and by Q2’20 had re-stabilised the supply and demand situation. Surprisingly, the demand for electronic components remained strong throughout the pandemic, particularly in far-eastern countries where the world’s smart-phones, PCs and tablets and other electronic consumer products are primarily manufactured. Towards the end of Q3’20 manufacturer authorised distributors were warning their customers that quoted lead- times for electronic components look set to extend - and so it proved! Despite COVID-19 lead times started to go out dramatically in the last quarter of the year, driven it seems by increased demand brought about by a surge in global economic growth. Demand peaked in Q1 ’21 in the run up to the Chinese Lunar New Year and the country’s extended national holiday.
Keeping safe
The pandemic arrived in the UK at the end of January 2020 and a mere two months later the government started to imposed restriction on our nation. ecsn members found themselves in something of a dilemma: As ‘key’ industries they wanted (and needed) to support their customers but were also mindful of the need to protect the health and wellbeing of their people, their families, and the wider community. At that time “isolation” was the buzzword, so ecsn members and their customers had to reconfigure their operations to ensure full compliance with the evolving directives issued by both the government and the public health authorities. Thanks to a great deal of staff cooperation and acceptance of new working practices and procedures this was achieved surprisingly quickly. Communication and computer systems were modified to meet the changes in working practices and after a short hiatus, companies throughout the supply network were once again operating effectively. For many people employed in roles such as sales, marketing and engineering working from home is nothing new but for
Components in Electronics
‘newbies’ used to working closely within a team (fi nance, operations and legal for instance) the requirement to operate from home came as something of a shock. In most cases employers provided the equipment and support staff needed to make the transition from offi ce to remote working but for many working in the home environment was probably less than ideal. Many people have been asked to excuse extraneous household noises whilst on the phone and some have had to smile sympathetically when a video conference is brought to a shuddering halt by the sudden appearance of a small child loudly demanding a biscuit. We’ve all been there! Operations such as production and stores simply cannot operate unless key employees are at their defined workplace. Safety is also paramount for these workers, but ensuring it presented their employers with entirely different challenges. They increased the emphasis on environmental hygiene, began to rigorously enforce the two-metre separation rule and introduced split-shift working patterns. At the same time, they embarked on an enhanced programme of staff cross-training that ensured levels of labour flexibility even in complex manufacturing operations that exceeded previous operational norms. These programmes have gone a long way towards ensuring that critical quality, training, safety and maintenance standards have been upheld. Of course, production bottlenecks can still occur, especially in the event that key worker(s) become incapacitated or have to self-isolate, but I’m delighted to report that such occurrences have been few and far between for ecsn members. Likewise, the majority of their customers are operating at near normality and continue to require on- time delivery of their scheduled orders.
The future
The supply and demand for electronic components looks likely to remain out of balance during 2021 and into 2022. In the short term It seems likely that Q2’21 will see average manufacturing lead-times declining by around 30% before extending and putting pricing under pressure when once again demand starts to exceed supply.
Sadly, I predict that we won’t see a return to stronger, stable growth until Q4’21, but supply difficulties can be mitigated by effective engagement with your partners both up and down the supply network. Sharing business intelligence in this way can make an effective contribution to the performance of your organisation and to the partners who also rely on your success. We all want to see a swift end to COVID-19 and the restrictions the pandemic has placed on us all. Despite the successful and very welcome roll-out of the various vaccines I suspect that the problem will never quite go away and unfortunately, we will have to contend with many virus related health and social issues for years rather than months to come. Physical meetings are likely to be the exception throughout the commercial world in 2021 and ecsn members confirm their expectation that their organisations will dictate that physical meetings will be banned for the foreseeable future. Reluctantly, ecsn is also replacing many of the physical conferences and get-togethers it had planned for 2021 with virtual events. … It will be wonderful to return to a physical business world but in the meantime, we’d better get proficient in the latest video conferencing ‘apps’ as this looks to remain the primary engagement method between individuals and organisations for a while yet.
For information
Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice.
www.cieonline.co.uk
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