Supply chain crisis in consumer electronics and strategies to overcome them

Supply chain shortages experienced globally since 2020 had manufacturers in consumer electronics, among other industries, scrambling for certain products – and often paying more for them. Fast forward to 2022 and the problem seems to have worsened. Russia’s invasion of Ukraine and a surge in covid cases in China have further increased supply bottlenecks.

Here’s a closer look at how the supply-chain crisis has affected the consumer electronics industry and the steps being taken to overcome them.

Chip shortages

Delays in component shipments, such as semiconductors, can bring an entire production run to a halt. As with any technology hardware, they must be manufactured and transported to the right facility at the right time to meet market demands. 

One such shortage that is affecting the CE industry is the chip shortage. A widespread shortage in semiconductor chips has underlined the critical role they play in today’s economy. While optimized supply chains in the electronics industry had helped temper the explosion of IT and digital services in the past two decades, several unexpected factors emerged with the potential to disrupt the optimized global model.

Take, for instance, Apple, which had expected to produce 90 million new iPhone models in Q3 2021, had to slash production by as many as 10 million because Broadcom and Texas Instruments were struggling to deliver enough components.

To combat shortages, Samsung is set to push for annual contracts with chip foundries to secure chip production capacity. In addition, the company will now stock up to four weeks’ worth of chip supplies instead of two weeks, as it did in the past. Samsung also intends to launch a $17-billion worth microchip manufacturing plant in Texas to overcome the continuing global shortage of microprocessors. While the new Samsung plant will not start producing chips until the end of 2024, it will make advanced processors both for its own products and those of other companies.

Manufacturers who are dependent on electronic supply chains must prepare for impact rather than hope to avoid it. Placing early orders and determining how flexible their production can be will lessen the damage.

Related reading: Global chip shortage: Mitigating its impact on consumer electronics

Transportation delays

Fast and efficient supply chains rely heavily on transportation and logistics. For instance, if you need to launch a product by a particular date, you don’t want to delay that product on an ocean-going container ship for six weeks. Nevertheless, transportation mayhem is inevitable sometimes.

During late Q3 and early Q4 2020, the ports of entry on the West Coast faced increased demand and labor shortages. In Q4, the situation worsened as Covid-19 cases in the US surged overall, as well as among workers in the ports. Ship unloading and transportation were delayed as a result of the combination.

To better manage transportation delays, CE companies are using diverse logistics and transportation options, as well as transloading. According to sales figures worldwide, Apple transports its high-value consumer products primarily by air freight. With over 2,500 global suppliers, Samsung employs a variety of logistics and transportation methods while focusing on worker safety, environmental responsibility, and workers’ rights.

Transloading, i.e. the use of multiple modes of transportation to get products to their final destination,  speeds up the supply chain and increases throughput, which helps prevent bottlenecks. This practice can often shorten shipping times by several days. Further, transloading makes shipments easier by consolidating large loads into smaller ones. Consolidating loads reduces the amount of fuel used during shipping. Since products are sorted for local shipment at the warehouse, transloading can eliminate the need for a distribution center. These features add up to lower overall costs.

Ensuring an optimal mix of truckload, LTL, and intermodal, can help CE manufacturers better adjust to changing business conditions, both current and predicted including changes in volume, seasonality, supplier locations, etc. 

Reverse logistics

For the CE industry, effective management of the reverse supply chain is essential in order to minimize e-waste. Globally, the amount of e-waste has quadrupled over the last five years, reaching 54 million tons per year, according to a United Nations report. More than $400 billion in merchandise is returned each year from consumers to retailers from online sales, a return rate three times greater than brick and mortar sales. 

With increased regulation around e-waste management, CE brands and retailers are expected to undertake the responsible management of returns and overstock items. In fact, there is an economic opportunity in the recovery of components that the CE industry has sensed. 

While there is no on-fits-all solution for handling reverse logistics, manufacturers and retailers are considering the following strategies to minimize disruption of core business revenue and operating costs. These include:

• Ensuring contingencies for unexpected events. It may be unreliable if a company relies exclusively on one facility, a few buyers, a single sales channel, or small/informal transportation solutions.

• Building a continuous movement of excess/returned inventory through your supply chain so that inventory does not accumulate or reach critical levels.

• Assigning returns and resale activities to external providers to maintain focus on core business operations and invest in new partners with expertise in on-demand services.

Amazon plans to cut waste by selling used products on its website through third-party businesses. Additionally, Amazon’s “wholesale resale channel and technology”, will allow sellers to recoup part of their inventory cost from returned items and excess stock through its “FBA Liquidations” program.

Pricing pressures and rising costs

Components and parts for high-tech devices are made from minerals, metals, and other commodities. Increasing costs for gold, silver, lithium, silicon and other materials directly impact profit margins if these expenses are not controlled or reflected in end pricing.

Supply chain managers must understand the supply and demand of commodities, as well as external factors that can affect pricing. For raw materials, futures contracts must be locked in to ensure that commodity costs are guaranteed and that availability is always ensured.

Understanding likely price movements and supply challenges for high-tech commodities is the best solution. This involves:

• Establishing robust pricing agreements with raw material extraction companies to limit price variations
• Predicting future demand for essential materials and commodities through efficient predictive models
• Understanding the impact of external market conditions like tariffs, global demand, oversupply, economic change, or geopolitical uncertainty on the supply chain and taking steps to mitigate risk

Cybersecurity risks

The entire supply chain ecosystem is vulnerable to cyber security threats, from suppliers to software providers to customer-facing businesses. These threats include the risk of data breaches, identity theft, and compromised information, all of which can cause significant financial losses. 

As tech supply chains grow more interconnected, penetrate new markets, and interact with the IoT more heavily, cyber-security breaches and malicious threats become more prevalent. At the same time, because critical infrastructure such as power grids and defense systems are made up of tech components, they must be protected against malware infections during their journey from procurement through delivery.

In December 2020, a widespread supply chain attack trojanized the Orion software update by SolarWinds, a leading provider of IT monitoring and management solutions for enterprises. The malware is designed to retrieve and execute commands that can transfer files, execute files, profile the system, reboot the machine, and disable system services. 

As many as 17,000 customers may have installed the infected software updates. In addition to the US government, other consulting and technology firms in North America, Europe, Asia, and the Middle East were also victims. 

Against this backdrop, Lenovo has launched a new approach, ThinkShield, to secure devices through their entire lifecycle. Through a strategic partnership with Intel, called Intel Transparent Supply Chain, Lenovo allows customers to track the source of each component of their new system. It ensures compliance with ‘trusted supplier’ guidelines and best practices by overseeing and auditing suppliers who build intelligent components.

The supply chain crisis emerging post the COVID-19 pandemic has underscored the importance of a proactive, forward-looking approach toward supply chain management, particularly in the CE industry. Manufacturers and retailers should not dismiss these disruptions as short-term, but instead adapt their supply chains to evolving social developments, such as sustainability and the circular economy.