As we endeavour the first quarter of 2021, we reflect on 2020 and see the impact it has had on our supply chain and business models. Inevitably, 2020 caused widespread difficulties in the marketplace, with all areas of the economy feeling the pressure. This left many electronic manufacturers with an ambiguous vision of what the future may look like.
Not only are we having to adopt new behaviours to curb the spread of the virus, but in tandem, supply chains needed to constantly adapt to other ‘firsts’ including, increased freight charges, reduced freight availability, constraints at ports, extended lead-times, raw material shortages, allocation and price increases.
Although, the electronic manufacturing world has a brave path ahead before seeing any hints of ‘normality’, we must pray on the positives and believe there is light at the end of the tunnel.
Developments have already been seen in the UK with the vaccination roll-out, being ranked the fourth highest in the world.
Monitoring of the supply chain will be crucial for the first half of 2021 for allocation, lead-time extensions and price fluctuations.
LEAD TIME ISSUES AND COMPONENT SHORTAGES
Similar to Q4 2020, there will be significant delays and disruptions with all electronic components – lead times will continue to extend.
- Visibility and supplier relationships will become the number one priority for effective management. Having a clear understanding of the location and status of inventory, the movement of stock and an accurate view of customer demand will ensure your supply chain is leveraged effectively. Re-evaluation and focus to more local, stable services have become pivotal.
- Component availability will not always be guaranteed. Expect shortages as well as delays, as some parts of the global economy are restarting.
- Increased demand, static capacity, and industrial accidents have all come together to cause longer lead-times, reduced availability, and upward price pressure for key raw materials.
- Supply chain logistics are another cause of concern as demand picks up post-pandemic lockdown. Significant capacity constraints are affecting the availability of both sea & air freight. Market data shows that air freight demand is close to returning to 2019 levels, but the available capacity is down by 24% due to the lack of passenger flights.
- With the Chinese New Year just around the corner, this adds more pressure to extended lead times due to factory shutdowns and reduced movement. Relationships and preparation are vital.
- The good news is suppliers have been working on increasing capacity, but it may take some time before standard lead times return.
- Positively, price levels have dropped from the early pandemic highs of 4-5X pre-pandemic rates. However, pricing has been on the rise since Summer 2020 due to very high seasonal demand. It currently sits at 2-2.5X. They are expected to remain high in 2021 and until a substantial increase in passenger air traffic surges available cargo capacity.
- Prices will also continue to rise due to Brexit stockpiling. Preparation is key to ensure our supply chains are responsive and flexible, so they can meet the demand of these challenges.
- Rising prices for copper and other metals are some of the challenges we will continue to face throughout 2021. This may lead to potential shutdowns of component production due to COVID-19.
- Demand for copper foil is growing for PCB and battery production, which will add more pressure on price increases.
- Today more than ever, suppliers that own and control the complete supply chain of PCB materials containing laminates, have a clear advantage. Maintaining carefully managed inventory in various locations worldwide gives the flexibility to adapt to these unforeseen circumstances.
The more we can work together, and establish close, strong, and enduring relationships between the benefit of supplier and customer, the easier it will be to navigate through these immensely challenging times.