It’s no secret that Asia is the heart of the global semiconductor industry. Particularly, chipmakers and companies around the world depend on the Chinese supply chain. Cost-effective labor and technological innovation have made this a viable strategy for decades.
However, the coronavirus pandemic has exposed the fact that a geographically centered supply chain is not wise and clearly unsustainable. One adverse event (like a deadly virus) can cause tremendous disruptions to production and lead to things like slashed profits, delays in manufacturing, and sadly, employee layoffs.
As such, the importance of creating and maintaining a geographically diverse supply chain is clearer than ever. Although its too late to reverse the damage of the coronavirus, companies can work to avoid such problems by diversifying their supply chain for the future.
For any company, working with external suppliers is unavoidable. It’s simply impossible to produce every part in-house. Working with suppliers is not only necessary, but it’s also a good thing. That type of cooperation helps drive markets forward and makes final products better.
However, there is a fine line between cooperation and reliance. Any company that depends on a single supplier for its components is, by default, at the mercy of the supplier. Should a global pandemic (or any other event) halt their production line, then that business will also grind to a standstill.
By contrast, sourcing components from suppliers located in various parts of the world (for instance, China, North America, and Europe) is far safer. During the coronavirus crisis, many Chinese suppliers were forced to shut down for weeks in late January and early February. Now, European factories are shutting down as the virus peaks there.
Companies who work with a supplier from both regions would theoretically have at least some degree of supply while those with only one supplier would find themselves without components for a lengthy time period.
Planning for the Worst
Sadly, supply chain diversification can’t happen optimally in the midst of a crisis. As companies scramble to find new suppliers, they will end up paying more for components and may still experience delays in their own production.
Instead, diversifying a supply chain needs to happen before a problem occurs. Preparedness is paramount when finding ways to avoid the negative effects of events that impact the global supply chain.
For instance, look at Intel. The tech giant has a 15-year-old Pandemic Leadership Team designed to keep the company running at times like this. As a result, Intel is maintaining an on-time delivery rate of more than 90 percent while its competitors stall. This also puts it in a position to help battle the wider problem by donating supplies to fight the coronavirus outbreak.
Through extreme global diversification and worst-case-scenario planning, Intel remains open for business even as companies around the world temporarily shut down.
Many of today’s companies are helplessly linked to the Chinese supply chain. If anything, the coronavirus has shown that such an approach is a bad idea. To be clear, sourcing components from China isn’t a bad thing. In fact, companies should include Chinese suppliers in their plans.
Yet, businesses also need to diversify their supply chain to include suppliers outside of China as well. In doing so, they can be better prepared for unexpected events that cause disruptions to the global economy.