What’s next for high-tech supply chains?
Blog: Capgemini CTO Blog
Looking beyond the impact of COVID-19
The supply chains of the high-tech industry have suffered huge disruptions before; the 2011 tsunami in Japan, for one. This tragic disaster resulted in shortfalls in semiconductor chips and hard drive disks and a sharp rise in prices. Many high-tech manufacturers operated in the affected areas, but few invested at the time in risk mitigation by adding resilience to the supply chain.
Fast-forward to the initial impact of COVID-19 – manufacturers were once again presented with the urgent need to re-balance their supply chains to not be over-reliant on too few suppliers and geographies. The electronics industry was hit particularly hard. According to a survey released in May 2020 by Supplyframe, 53% of electronics industry leaders said new product launches have been delayed or canceled due to the pandemic, and 37% said their component costs have increased.
Over two-thirds of world trade occurs through global value chains (GVCs), in which production crosses at least one border before final assembly. The COVID-19 pandemic has hit the three major GVC hubs – China, the European Union (EU), and the United States – and has since flared, and then flared again, in other geographies around the world. This presents massive challenges for enterprises that are reliant on being able to import and export across one or more international borders.
But the pandemic is only one of a plethora of challenges already faced by the high-tech industry and its supply chain. There’s the intensifying trade war between China and the US, the economic fallout of Brexit, and the recently signed Asian-Pacific trade agreement. This historic agreement was signed by China and 14 other countries. It’s one of the biggest free trade deals ever and covers 2.2 billion people and 30% of the world’s economic output. The deal will remove trade barriers for the signatories, but it will also extend the influence of China. It’s an ultra-disruptive environment.
Although some high-tech manufacturers will certainly consider shifting operations to a geography that is less vulnerable to political, natural, or epidemic disruption, it’s a huge upheaval for any large organization. Many manufacturers, such as Phillips, which currently produces 70% of its audio devices and 20% of its total product mix in China, will be understandably incredibly reluctant to move out of China for instance because of the co-location and of key suppliers, specialized production capacities, and of course its well-known economies of scale and concentration of skilled labor.
When the coronavirus first emerged in China, OEMs in the rest of the world struggled with a much-reduced visibility of their manufacturing operations. But as cases went on to spike in many other countries at different times, it made a potential relocation from China even more complicated, maybe even impossible, to contemplate.
Gaining high-tech resilience and flexibility
So, now that the dust has settled and enterprises are transitioning from the immediate remediation of reducing non-essential spending and investments and re-evaluating expenses, it’s time to strategize for longer-term resilience. What follows are, in my view, the most important factors to consider when moving forward with reinventing the supply chain with more digital flexibility and durability and safeguarding against future headwinds.
There is an obvious irony in many high-tech OEMs not fully embracing more digital, agile, and responsive models in their supply chains, despite the cutting-edge technologies rolling off their shop floors. Supply chains need to become more data driven, resilient, more regional and sustainable.
The importance of access to quality and immediate data has never been greater for the supply chain of any large organization in any sector. It enables the instant harvesting of insights from multiple touchpoints simultaneously to react and remediate problems, and even to foresee future problems and take evasive measures to lessen or even completely avoid any interruption to operations. Historical and fresh data should be married to generate forecasts – predictive analytics enable organizations to respond to the swift changes in customer demand and reach quicker and wiser supply chain and production-line decisions.
AI and machine learning can leverage data to help forecast demand and optimize aftermarket needs, among many other things. It can also shine a light on the order decoupling point and can help supply chains respond and adapt in real time, to even the slightest disruption at any point along the supply chain.
Just as COVID is highlighting the fact that we as individuals are all intricately connected in one global environment of cause and effect, I believe the pandemic can also make it clear to organizations that widespread collaboration across industries, and across the private and public sector in a large, shared ecosystem, can deliver value for all parties at every point along the value chain.
Technologies such as blockchain can provide the bedrock of trust across a shared ecosystem of partners.
The future is now – manufacturers should embrace it
Many of the challenges that high-tech organizations now face in terms of supply chain aren’t new, but COVID-19 has dramatically highlighted the need for manufacturing organizations to re-imagine their supply chains and operations, and achieve a more agile, flexible model underpinned by AI and data. It is a substantial challenge for organizations to completely rethink their somewhat rigid supply chains that have formed and calcified over the years and break down the siloes that have been up till now the roadblocks of change. But it’s time to look beyond the horizon and embrace opportunity to reinvigorate the supply chain model and take confident strides into a more resilient future.
Vice President – Operations Transformation