The global electronic manufacturing landscape is characterized by increasing interconnectedness and complex supply chains. In such an environment, an effective management of electronic components is a top priority for manufacturers in critical sectors such as transportation, energy, defense and healthcare. Securing a consistent and reliable supply chain is a strategic imperative, influenced by global events and macroeconomic forces. To build resilience, manufacturers must understand the intricate relationship between these forces and their supply chains to build strategies that mitigate disruptions and ensure an effective electronic components management.
How can geopolitics impact electronic component management?
Trade policies and tarifs
Geopolitical dynamics significantly impact the supply chain of electronic components. They manifest in many critical ways, affecting the availability and pricing of components.
The primary impact stems from trade policies and tariffs. Governments may restrict the export or import of specific components or raw materials, often depending on their security objectives or to protect domestic industries. These measures can lead to higher costs, reduced availability and the fragmentation of established supply chains.
Geographical concentration of production
Furthermore, the geographical concentration of the manufacturing of crucial electronic components in a limited number of regions amplifies geopolitical risks.
For example, Taiwan manufactures more than half of the world’s semiconductors and 90% of sophisticated chips. Therefore, any political instability, natural disaster, or diplomatic tension in Taiwan could have a cascading effect on the global electronics industry.
To build a resilient electronic components management system, your company should not rely on a single or a few geographical sources. Having an extensive network of suppliers whenever possible reduces your vulnerability.
Strategic resource competition
Many electronic components rely on a diverse variety of raw materials, some of which are considered “critical minerals” (e.g., lithium, nickel, and cobalt). Competition among nations for control or preferential access to these resources, which are often concentrated in specific geological locations, can drive up prices and create supply bottlenecks. For instance, a country may decide to restrict its rare materials exports in response to a threat from a rival, impacting the entire supply chain in one or more territories.
Geopolitical shifts introduce unpredictability to component management, leading to volatile lead times and price fluctuations. To mitigate your risks, your business should adopt a strategic and proactive approach that factors in the political situation.
Other causes of shortages and their impact
- Surging demand and supply-demand imbalances: rapid technological advancements and the proliferation of electronic devices across industries can quickly exceed existing production capacities. A sudden increase in products such as laptops or electric vehicles may create significant imbalance, resulting in extended lead times and allocation challenges.
- Natural disasters and manufacturing disruptions: localized events, such as factory fires, floods, pandemics, etc. may cripple manufacturing hubs or logistics networks. Given the highly concentrated nature of some of component production, these disruptions can have global, cascading effects, potentially halting production lines, delaying product launches and impacting revenue and market share.
What sourcing strategies can help reduce the impact of geopolitics?
Proactively mitigating geopolitical risk in the supply of electronic components requires multifaceted sourcing strategies that prioritize resilience and stability. These strategies aim to reduce dependence on a single supplier and increase flexibility within your supply chain.
- Supplier diversification: As shown previously, relying on a single supplier leaves you vulnerable to geopolitical factors that could disrupt your supply chain. To improve electronic component management, establish relationships with multiple qualified suppliers across different regions or countries. This spreads the risk over multiple sources and provides direct access to alternative supply channels in times of crisis.
- Regionalization and nearshoring: This involves shifting the sourcing of components and manufacturing operations closer to end markets or to politically allied regions. Although it may incur higher initial costs, regionalization reduces exposure to long international shipping routes and complex geopolitical tensions.
- Strategic inventory management: Holding strategic buffer stocks for highly critical or at-risk components creates a safety net during sudden supply interruptions. This balances the cost of holding inventory against the significant financial and operational impact of production halts. It also allows time to strategically adapt and switch to a new supplier.
What proactive components management strategies can help build resilience?
Building resilience against supply chain disruptions requires more than just sourcing strategies. It requires proactive component management strategies that integrate technical expertise and foresight.
Design for manufacturing
It is crucial to integrate Design for Manufacturing (DFM) principles early in the design phase. This process involves optimizing product designs for manufacturability, including component selection. Engineers should prioritize components with longer lifecycles that are widely available and have multiple qualified suppliers.
Selecting components with diverse supply chains and long lifecycles directly counteracts the risks posed by geopolitical crises and sudden shortages. This approach ensures that, even if a supply chain is disrupted, the manufacturing process will continue.
Obsolescence management
Strategic Obsolescence management is key to build resilience, particularly with long operational lifecycles. These strategies have a fundamental impact when components reach their end of life (EOL). They include continuous lifecycle monitoring, securing sufficient stocks through last-time buys, and actively researching and validating alternative components.
With a well-planned obsolescence management strategy, you will build resilience to geopolitical risks that may accelerate the EOL of certain parts. You will be able to secure your inventory for years to come and ensure the continuity of mission-critical systems until viable alternatives are found.
How can an electronic management services company help?
Partnering with an electronic manufacturing services (EMS) company like ACTIA can help you manage the entire electronic value chain, from design to after-sales support. Our areas of expertise include expertise in Design for Manufacturing, prototyping, industrialization, upgrading and obsolescence management. We will support your company in building resilience, ensuring supply stability, and promoting project longevity.
