MATERIAL GAINS
The Importance of Logistics and Supply-Chain Management are Still Underestimated
The electronics industry should adopt data-driven planning methods.
For many companies, supply-chain management has become a major challenge as the pandemic has continued to disrupt all our lives. As lifestyles have become home-based, for work and leisure, demands have shifted from services to products: materials and tools for lockdown projects, gaming and video equipment, and extra work-from-home IT. There is a global shortage of shipping containers and ships to carry them. As a result, shipping costs have increased sharply. It could take a long time for container costs to return to pre-pandemic levels. Added to that, the spread of the virus has disrupted and depleted workforces, resulting in backlogs and delays.

On top of the misery came the recent blockage of the Suez Canal, adding several days of delay as the backlog was cleared. And, of course, there were domino effects at ports around the world, as cargo was unable to move into or out of the system. The problem has raised questions about the future of super-large container ships and strengthens the argument for using larger numbers of smaller vessels.

Far-flung supply chains, designed to enhance competitiveness and minimize costs, are now under threat and will likely need to change. The world is simply too impatient to wait for things to return to normal. Moreover, there are strong calls for a “new normal” that should, at the very least, strive for environmental sustainability.

Shipping is one of the modern world’s most fossil-fuel-intensive activities, and there are strong desires to cut emissions from the heavy diesel fuels that are used. I’ve written before about moves to introduce hybrid-electric power to shipping. Among other interesting initiatives, the International Windship Association has formed to encourage the adoption of direct wind propulsion systems in commercial shipping. In 2020, the IWA celebrated the fact that the number of wind-assisted ships in operation had reached double figures. That’s a small base to build from. I have read that wind-powered shipping has been quite successful in the past, however.

Reshoring is an obvious response to the emerging supply-chain challenges. It’s a popular notion for a number of reasons, although I see it as having only limited relevance. Take the PCB industry for example. As board fabrication moved to the Pacific Rim, so too did the supply of essential raw materials. Glass weavers and copper foil suppliers have all but disappeared from Europe. Without that infrastructure nearby, starting up general-purpose PCB fabrication now would be extremely difficult.

Clearly, offshoring is not easily reversed. It moves with the natural progression of economic development. In the same way the West transitioned from the industrial age toward service-oriented economies at the end of the 20th century, the leading Asian economies are now in a similar position. Their rising labor costs appear to support the reshoring argument, particularly when shipping is factored in. More likely the next wave of developing economies will become the new powerful manufacturing destinations.

The European EMS scene offers a different perspective. Labor costs remain relatively low in Central and Eastern Europe, which has permitted EMS businesses to thrive in those locations. The key is they benefit from the large and demanding customer base in Western Europe. Although it’s generally too expensive for EMS businesses to be based in the center of their market, distances are short, and communications between customers and suppliers are relatively easy.

I touched on these issues recently in a presentation to the EIPC, in which I described the structural changes in the European PCB industry supply base and the dramatic shift in PCB shipments over the past 20 years. I highlighted the need to tackle the long traveling distances for products and materials among several suggestions aiming to help mitigate supply-chain risks in the future. I also believe the industry can improve logistics management and communications, as well as extend understanding of the supply chain and building in resilience. The key role of logistics in a maturing or commoditized business is still underappreciated. In addition, a lack of robust demand data is preventing suppliers and customers from coordinating their activities. Companies can greatly improve on-time delivery performance in end-user markets by trusting each other enough to share ERP data that lets suppliers understand exactly where materials need to be at any time.

Supply chains will continue to experience pain for at least the foreseeable future. The way forward undoubtedly lies in working smarter, strengthening trust among partners, and building our understanding of the entire supply chain, in particular, studying the vulnerabilities to unusual events such as the Suez Canal blockage and ensuring contingencies such as alternative routes. On the other hand, the effects of a crisis such as the global pandemic are extremely difficult for anyone to anticipate or plan for. A move to more intensively data-driven supply-chain planning, with routine stress testing leveraging the experiences of the past 12 months, could both be aspects of the new normal for our industry.

Alun Morgan smiling
Alun Morgan
is technology ambassador at Ventec International Group (ventec-group.com); alun.morgan@ventec-europe.com.