Rand Technology’s executive VP, global solutions and sourcing, Jennifer Strawn, looks at how to assure adequate supply chains and the integrity of manufacturing processes
In Q1, Chinese semi-conductor production slows during the 16-day Lunar New Year observation, making supply chain management more problematic. Many OEMs and CEMs were already facing inventory imbalances, with companies sitting on abundant inventories of components not immediately required, while simultaneously lacking ‘golden screws’ needed for production.
Companies face the conundrum of using, absorbing or selling surplus inventory while acquiring parts in short supply that are essential to assuring integrity of their manufacturing processes. Some corporations have proprietary processes; others may partner with a global sourcing and solutions provider to identify opportunities that match buyers and sellers.
For example, if ‘Company A’ builds an automotive product and has an overabundance of a component, a sourcing partner with access to thousands of manufacturers, may have a relationship with ‘Company B’ which needs those parts and can facilitate a transaction. These could be competitors or completely unrelated businesses that happen to use the same semi-conductors. This helps purchasers charged with filling gaps for critical components but face budget constraints from finance teams rejecting orders for egregiously overpriced parts.
A global sourcing and solutions provider uses proprietary data analytics to identify trends and arm customers with the tools to execute day-to-day operations. In addition to macro trends, a sourcing company keeps their clients abreast of anomalies that impact market trends and events which customers are not aware of.
An example was a January fire in China that disrupted component production. Stack the Lunar New Year celebrations on top and one has a combination that portends near-term problems and perhaps longer lasting issues. Getting information to customers in a timely manner is essential so they can address problems before they escalate.
Purchasers should think strategically: use all their partners and tap all their applicable resources. This might mean maintaining a larger parts inventory than is customary and/or engaging with a partner that can help assure a continuity of supply and minimize inventory gaps so that production timelines and goals can be supported.
It is important to note that, even though a company’s supply chain may be functioning well and there appears to be an abundance of inventory, it is wrong to assume the issues that caused shortages in the recent past are in the rear-view mirror for good. Purchasers need to think long term and acknowledge that when the next super cycle is on us—the global economy is humming and demand rebounds—the fundamental problems of the global supply chain may not be fixed and will likely lag the market for perhaps several more years. Thus, it is prudent to expect longer lead times for component production, particularly for those that go into power supplies, and plan accordingly.