What’s Next For Supply Chains After COVID-19?
Global supply chains across all industries have been significantly disrupted by COVID-19. As companies and entire countries work to reopen, a clearer picture of the impact is starting to emerge. Although no one could have planned for a global pandemic and the resulting economic damage, it has served to highlight weak spots in supply chains that can be improved for greater business continuity and resilience in the future. For electronics and technology-based manufacturers, there are three key areas that can be strengthened.
Discrete Components & IC Sourcing
Even before COVID-19, component lead times were at almost all-time highs. It was not uncommon to see lead times of 18-36 weeks on core components needed to build most electronic equipment like common resistors and capacitors. This peaked in 2018 as the growth of electric cars, automotive smart technology, and continued explosive growth in smart devices and IoT put strain on the availability of these core components.
This has again become an issue as factory shutdowns and worker shortages has restricted the output of the same factories that had just started recovering from the shortages of 2018. As more businesses reopen and demand grows, it is anticipated that supply may struggle once again to keep up.
The solution is to work with a partner who can evaluate your overall supply chain risk to identify the components that are likely to drive your overall product lead time. By strategically sourcing these components, risk can be minimized and manufacturing lead times shortened. Mirian regularly works with its customers to identify opportunities to improve the sourcing of a Bill of Materials (BOM). For customers with multiple BOMs at Mirian, we even work to identify common parts that are shared between BOMs to create opportunities for group buys. Securing these hard to source materials ahead of time and scheduling manufacturing to meet a customer’s demand allows products to arrive where they are needed “just in time” for efficient management of cash flow.
Offshoring vs. Reshoring Manufacturing Operations
Over the past several decades, many companies have been lured overseas for the promise of low-cost manufacturing. Quite often, this lower cost was enough to offset appropriate concerns about weakened intellectual property protection, increased regulatory risk, reduced cash flow flexibility, and increased freight and shipping costs. When problems inevitably do occur, time zone differences and travel times make resolving the problems that much more difficult.
The global pandemic illustrated how risky it is for companies, or even entire countries, to depend on production and manufacturing facilities located on the other side of the world. As the workforce shrunk, and entire facilities closed for extended periods, products that companies were depending on to ship to their customers were stuck in a facility that was no longer open, and travel restrictions meant there was no way out other than to just wait for the facility to reopen. This highlighted how big of a risk it is to have an entire company’s supply chain and production capacity overseas and ultimately out of reach.
One solution would certainly be to bring that manufacturing back to where it can be more easily managed. However, it’s not always so easy. Often when a product is offshored to Asia, the manufacturing “partner” helps to reduce the cost by designing in parts that are exclusive to the Asian market. This creates lock-in that makes it difficult to relocate manufacturing without significant redesign effort. Mirian has extensive experience helping customers migrate their manufacturing back to domestic sourcing, including assistance with component identification and domestic redesign and BOM review. Reshoring products to domestic manufacturing results in improved intellectual property protection, increased ability to respond to changes in demand, and substantial improvements to cash flow and logistics management.
In other cases, it may make sense financially for some manufacturing to remain overseas. This does not mean there are no other options. Mirian often works with customers to develop a hybrid supply chain that retains their overseas manufacturing, while mixing in some domestic manufacturing and sourcing. The domestic manufacturing helps to shorten lead times and is more responsive to changes. It also often adds quite a bit of cash flow flexibility. Too often customers pay in advance for overseas manufacturing that takes months to arrive. That entire time, that cash flow is tied up and not available for use. With domestic manufacturing coordinated through Mirian, customers often instead pay once the product ships either to them or direct to their customer. With the right mix of domestic and overseas manufacturing, the total product cost can be averaged across all products from all sources, resulting in the flexibility domestic manufacturing affords often without significant cost impacts.
Logistics & Warehousing
As companies responded quickly to the COVID-19 outbreak and followed CDC guidelines to encourage their workforce to work remotely, an obvious problem soon emerged. How can you ship orders to your customers remotely?
Companies deemed “essential” by their local governments worked quickly to adapt their warehouses and shipping operations to meet CDC guidelines for spacing and hygiene. However, many other companies were forced to close entirely. If a company can’t ship its products, it’s effectively out of business, regardless of whether others within the company can work remotely.
Mirian provides warehousing and logistics services to many customers and operates as an extension of their operations. In many cases, Mirian manufactures products to finished goods or “Kanban” inventory stored at Mirian. From there, it can ship to the company who fulfills customer orders in their own facility, or Mirian can provide blind shipping and fulfillment services directly to the customer. What would it mean for your cash flow to receive an invoice for your manufactured product on the same day you send an invoice to your customer for their order?
In response to COVID-19, a number of customers moved quickly to establish Mirian as a secondary fulfillment center for their products. In this capacity, as their own operations were impacted by shutdowns or worker shortages, Mirian was able to continue shipping products to their customers. We anticipate this valuable service to continue after COVID-19 as customers realize the benefits of our distribution and warehousing capacity on both coasts of the USA and in Europe.
What’s Next?
As companies recover from the impact of COVID-19, operations and purchasing managers will be tasked with building greater resiliency into their supply chain. Flexibility and redundancy will become key as companies work to determine how to stay operational when faced with any business continuity threat. As an extension of your supply chain operations, let Mirian Solutions help you develop a plan to scale and support your business in the post-COVID-19 world.
