Written by: Lew Brown, Partner
While the pandemic's effects on the supply chain are only about 18 months old, it's been an eternity for companies caught in the middle, or worse, on the outside. Predictions for when things will calm down range from 12 months to much longer; in business, that's another eternity. Once we're on the other side, will things then go back to "normal"? Sure, but it's bound to be a new normal. Today's lessons learned under adversity are tomorrow's readiness for what will no doubt be new supplier dynamics.
"What If" Is Your Friend
Challenges like shortages of port workers and truckers aren't something you can really plan for. Or can you? Even as suppliers lift themselves back to normal production, the logistics bottleneck could be an ongoing wild card. How well are you prepared to endure "unnatural" time and cost? There's no magic bullet answer, other than the willingness to ask searching questions. For example, what if today's sky-high shipping rates never fully returned to the old normal? Would the rest of your plans still make sense? What are your alternatives?
When Will Next Be Ready?
Component suppliers haven't liked these disruptions any more than their customers, with one exception. There's now a legitimized reason to focus output on the most profitable (read: costly) leading-edge technologies. Products that depend on older, larger chips or a lower-cost display may be . They're likely to stay that way too; suppliers aren't keen to allocate resources to less profitable goods. On the other hand, some suppliers are now pushing older chips that have long been amortized. Does that abundance benefit you as much as your supplier? What's your strategy? Do you play the spot market until it dries up, or re-consider your engineering plans?
Trust But Verify
Back before the pandemic, and for that matter, before the saber-rattling over trade and tariffs that actually began the disruptions, a good supplier relationship was like a marriage – not something you'd think to re-evaluate on a regular basis. Today, the market is more fluid and suppliers are less betrothed than they once were. Maybe you should be too. The best suppliers can try to give an honest estimation of capabilities, the less-best ones maybe can't. A regular review of these relationships (and alternatives) across the board will help to understand and reduce risk. In many cases, it can yield pleasant surprises, even under these trying circumstances.
Readers old enough to remember the 1973 oil embargo probably best recall the long lines at the gas station. It was the most visible sign of the problem, much like today's ships standing in wait at the port. However, the immense ripples of that global disruption ran much deeper. Gas prices rose from 25 cents per gallon to over a dollar. Daylight savings time became compulsory all year round to reduce energy. Economical cars from Honda and Toyota began to replace Big-3 guzzlers. The "official" disruption lasted only 7 months. The stock market recovered 9 months after that. But was the world ever the same? Put it this way – did you ever see gas for a quarter after that?
This isn’t always true. While it may be true with smaller chip technologies as foundries what to move production into smaller footprints, some older technologies are being pushed because the costs of development have been amortized a long time ago and they are therefore MORE profitable. The rockchip rk 3126 is 7 years old and is still one of the most predominate chips used in Android tablets (as an example).