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What Does 2012 Hold in Store for the Electronic Components Supply Chain?

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As we launch into the new year (it's February already!) I thought it might be a good time to take a look at what transpired last year for the electronics supply chain and see what that might mean for the New Year.  Although acts of God are terribly difficult to predict, there is one thing that we can count on.  They will happen.  We are never sure when and where, so we have to be prepared as best as we can with the limited resources that we respectively possess.

To start with, it might be a good idea that major technology parks aren’t build on flood plains.  In speaking with one executive of a major hard drive manufacturer over the holidays, it was apparent that they had no contingency plans for such an occurrence, nor did most of their suppliers and competitors. Consider the fact that large floods have occurred along Bangkok’s Chao Phraya River in 1942, 1978, 1980, 1983, 1995, 1996, 2002 and 2006.  You would think that this might have been a warning to the government planners and companies that chose to locate 45% of the world’s hard drive production in a potential disaster zone of one of the key components (hard drives) not only to the personal computer industry, but to the electronics industry as a whole.  Perhaps this is another example of government policy distorting markets given the rich subsidies that the Thai government has provided to the electronics manufacturers for locating in Thailand.

(Picture credited to NYTimes.com, article by Thomas Fuller, Published: November 6, 2011)

Going forward, I think we can see some specific efforts to avoid these situations.  Here are five trends that we think will impact the electronics supply chain:

• There will be efforts made by companies to avoid relying on a narrow source of supply, whatever that may be.  Companies will work to make their supply chains more dynamic  to meet customer’s actual and perceived demand.  Whether it is a reliance on a specific source of power in the case of the Japanese tsunami in March or the concentration of manufacturers and their subcontractors in one area in Thailand in November.  This is in contrast to the initiatives by companies to reduce their approved vendor lists over the last several years.

• The floods in Thailand will be largely felt in the first and second quarter of 2012.  Most customers already had their materials in stock for the end of the year.  The real impact is will be felt in the coming months.

• As a result, the supply chain will become more fragmented and subject to more disruptions in the short run.  That will place a great deal of strain on procurement departments to meet supply in a lean manufacturing/just in time environment.

• Given the reluctance of component manufacturers to increase capacity and production and the availability of product on the open market, if there is any uptick in demand there is likely to be shortages as a result.  Given the prevalence of counterfeiting, it is very important that companies engage with distributors that can provide the necessary safeguards to protect their supply chain from potential quality issues.

• The continuing rhetoric out of Washington bashing business and the 1 percent will continue to be a drag on corporate spending and will not be resolved until the election.

These are just our observations.  For additional thoughts that you have or to find out more about IC Trends please go to www.ictrends.com.