Building a Resilient Supply Chain

Supply chain disruption has become an all-too-common phrase that both business leaders and consumers have heard about at great length for the past two years. Sourceability’s Yashar Shahabi sat down with Forrester’s VP & Principal Analyst, George Lawrie, to discuss the state of the supply chain within the electronic components industry and how to avoid the disruptions of tomorrow.

We captured the discussion below.

The State of the Supply Chain

Yashar Shahabi, Sourceability

Over the past two and a half years, all of the supply chain rules and principles the industry had lived by were turned on their head. As we’ve moved through various phases of the pandemic, we’ve seen the intensity on the supply chain sustain. This is particularly true in our industry - electronic components - which are vital to every form of technology, from electric vehicles to personal computers.

2022 has experienced the same intensity. If you’re a product manufacturer, you are struggling with extended lead times and exaggerated prices. For example, microcontrollers that historically sold for six or seven dollars are now selling for one hundred times that.

There are several reasons for the current situation:

- A global approach to building products: We develop products in a globalized world. Which means for any one component you could design it in the UK, have it etched in the US, packaged it in Indonesia and test it somewhere else. This level of interdependency put us in a situation where even one issue globally could throw off the supply chain.

- Increased imperatives for innovation: From demands around sustainability driving a global increase in EVs to the push to 5G and everything in between, the technological innovation happening at the corporate and government level has never been higher.

- A new consumer approach: Consumers have always loved technology, but the pandemic exacerbated this with demand for personal laptops increasing so kids could go to school remotely, and of course the boredom at home which increased demand for more fun IoT solutions.

- Industry consolidation: We’ve also seen massive consolidation of component manufacturers. With the top one percent of manufacturers owning about 80% of the market.

George Lawrie, Forrester ‍

Given the severity of the disruption we’ve experienced, the two primary questions I receive consistently from business leaders are, 1. What can we do immediately to fix it? and 2. When will it be over? However, the most strategic question I receive is, how can we ensure we aren’t in the same position in 5, 10, or even 20 years? That is what I’m most interested in discussing.

We are in a state of disruption driven by a myriad of factors, including a slowdown in production, global events causing materials shortages, and an analog way of doing business that is too slow to keep up with such a fast-moving situation.

Reimagining the Supply Chain

George Lawrie, Forrester

The good news is that we’ve seen several countries and industry leaders take massive strides that will benefit the industry at large in the future. There have been significant investments by the US, UK, Germany and many other countries to increase production on their shores, and we’ve seen leaders like Intel commit to a level of development that is sure to make an impact.

However, these steps won’t make an impact for quite some time, so we need to focus on what else business leaders should be considering now. At Forrester we like to say it’s the “age of the consumer,” but when it comes to electronic components I believe we’re living in the “age of the supplier.”

What this means is that when we’re speaking with clients at Forrester, there are just a few approaches that businesses can consider: simply accept an increase in price; make strategic changes to share the capacity better by doing things like moving to the cloud; or if you’re an OEM, start designing around what is available. I believe the key is that until we increase capacity, we must get smarter about what we do with the capacity we do have.

Yashar Shahabi, Sourceability

The ability to get smarter about how we’re sourcing components starts with how this process is happening. About 90% of the procurement process is still being done through excel spreadsheets, which are then emailed back and forth from the buyer to a handful of manufacturers in their Rolodex. This laborious process exists because the average product has at least several hundred components and excel has been the easiest way to capture all of that intelligence about availability, pricing, lead times, etc.

We founded Sourceability to solve this issue. In order to progress, procurement teams needed one application that could analyze their bill of materials, provide real-time insight into everything from availability to alternatives, and of course the ability to complete the transaction. Our products, including Sourcengine and Datalynq, offer transparency and access to a global marketplace that saves time and allows a level of strategic decision making on the part of the buyer that they cannot get through email alone.

Anticipating Demand & Protecting Supply Chain Bottlenecks

Yashar Shahabi, Sourceability

While the pandemic certainly brought its share of challenges, one positive is that it has accelerated the digitalization of the electronic components industry. Companies have realized that they can no longer afford to work in a “just in time” model with a bill of materials that has no flexibility.

We are moving in the right direction with data providers and applications that are starting to integrate critical aspects, such as alternates and a greater set of manufacturers than in the past. Businesses are taking cues from companies like Tesla, which designs its vehicles with a vast array of alternates, so one plant shutting down or one manufacturing issue doesn’t mean production will be shut down.

Streamlining the integration across multiple applications - from design to sourcing - is on the rise, and we see that intensifying in the next couple years. This is critical given we anticipate the market will be flooded with excess at some point in the coming years, which could put us back into a cycle of boom and bust yet again. With strategic design, forecasting and sourcing, companies can learn from the challenges of the past couple years and work to avoid these cycles in the future.

George Lawrie, Forrester

It’s a great point that through the transparency offered by a marketplace for electronic components, companies can avoid the boom and bust cycle of the past. Creating strategic buffers, starting with design and ability to utilize alternates, to the geographical nature of where parts are sourced, are critical steps for companies to take today to avoid disruptions in the future.