Vertical Focus: Electronics

Risky Business

New research from Supplyframe confirms what we already suspected: The electronics supply chain continues to face high risk and is not likely to shed its woes in 2022. Thanks largely to the never-ending increase in demand for semiconductor chips, coupled with supply chain hangovers from pandemic related disturbances and new raw materials challenges relating to the Russia-Ukraine conflict, the grim outlook is here to stay for the foreseeable future, says the Supplyframe report. It also predicts three top risks for the electronics supply chain in 2022:

1. Component price increases due to materials shortages and manufacturing disruptions.
2. Longer lead times due to buffer inventory depletion.
3. Geopolitical rivalries between China and North America.

Breadboard Raises the Dough

Breadboard, a timely startup providing software that digitizes the supply chain for electronics manufacturers, recently secured $1 million in funding from Bienville Capital.

The new company, founded by CEO Zachary Feuerstein and CTO George Balayan, has created a solution that enables electronics manufacturers to generate instant quotes for their customers—which automates and speeds the lengthy RFQ process—and then organize the internal manufacturing and sourcing process.

The software helps manufacturers streamline RFQ delivery, automate bills of materials, calculate labor estimations, generate instant quotes, and process payments—and it is all customizable for each business. It also enables the manufacturer to seamlessly connect with suppliers and other supply chain partners.

As a result, Feuerstein and Balayan say, Breadboard users gain transparency into pricing, availability, and shipping times for all components.

With the urgent need for tools that aid in tackling supply chain concerns for manufacturers, Breadboard is well positioned for growth. The fledgling firm has also partnered with venture studio Fractal Software, which has supported the launch of more than 30 B2B software businesses.

Can We Save the Semiconductor Supply Chain?

Developing strategies to help strengthen the efficacy of the semiconductor supply chain is almost a national pastime at this point. Experts of all kinds have lent their brainpower to determining how to relieve ongoing supply chain pressures surrounding one of the most in-demand products on the planet. Renowned public policy organization The Brookings Institute is the latest to weigh in.

Instead of a focus on reshoring the semiconductor supply chain—an increasingly popular approach supported by recent legislation on Capitol Hill—the Brookings Institute espouses a two-pronged holistic approach to address semiconductor availability.

First, the United States should focus on deepening its high-tech collaboration with supply chain partners such as South Korea, Taiwan, or Europe. Second, the United States should amend immigration rules to permit more skilled workers to enter the country, augmenting the talent pool during a period of labor shortages and increasing the competitiveness of U.S.-based industry.

The Institute says these policies would help boost domestic production from 10-12% of the global market and increase supply chain resilience while minimizing potential efficiency losses from over-reliance on local manufacturing.

Its resistance to embracing reshoring as a solution centers around the excessive time it takes to build semiconductor manufacturing facilities, the likeliness that U.S. fabrication plants will not be profitable without government assistance, and ongoing labor shortages.

Embracing Just-in-Case Logistics

The supply chain turmoil in the electronics industry has been particularly crushing for electronics manufacturing service (EMS) companies—the ones making goods for original equipment manufacturers. Because they sit in the middle of the supply chain, EMS firms feel the crunch from both sides.

The best way for EMS companies to thrive today, according to recent thought leadership from Forbes Technology Council, is to embrace “just-in-case” logistics, defined as “relying on their own warehouses,stocked with excess inventory,to prevent shortages not only in finished products but also for spare parts and components” by Andreas Bubenzer-Paim, head of technology banking at Bank of the West/BNP Paribas.

Bubenzer-Paim recommends EMS companies adapt using six tactical steps to get to a just-in-case approach:

1. Encourage customers to shift away from placing frequent, smaller orders. Instead, EMS companies should get their customers to place larger orders to improve chances of securing needed components. That way, EMS companies can, in turn, place their own larger, less-frequent orders with their suppliers.
2. Use robotics and AI to help overcome supply chain inertia. Automating manual processes and streamlining human-machine interactions can help reduce the pressure on supply chains, and couples well with just-in-case inventory buffers.
3. Diversify across the globe. Having financial partners with a presence in key countries and regions can help manufacturers stay ahead of disruptions and maintain supplier relationships.
4. Consider reshoring. Following the lead of giants like Samsung and Intel, EMS companies should consider building semiconductor factories in the United States to localize talent, recoup losses, and improve supplier-manufacturer relationships.
5. Seek alternate financing mechanisms. EMS companies with cash-flow difficulties may benefit from financing channels that don’t require debt.
6. Provide shorter payment terms to suppliers. This helps ensure that suppliers are able to keep operating and providing the necessary components to the EMS industry.

A Pivot to Penang

Seeking to diversify beyond China for offshore manufacturing capabilities has been an ongoing strategy in the electronics sector—and Penang, Malaysia, is fast becoming a major player in the global semiconductor industry.

Embracing the area recently is TTM Technologies, a Santa Ana, California-based manufacturer of printed circuit boards (PCB), radio frequency (RF) components and RF microwave/microelectronic assemblies, which just broke ground on a $130-million manufacturing plant in Penang.

TTM selected Penang based on the region’s favorable conditions for investment and operating costs, customer proximity, and supply chain support. Penang was also attractive, the company notes, due to its well-established electrical and electronics industry ecosystem. Penang is now estimated to contribute approximately 8% of the global back-end semiconductor output, boasting a network of more than 3,000 local suppliers, according to economic development booster organization, InvestPenang.

“As an early-mover into Southeast Asia for the production of advanced technology PCBs, TTM is responding to our customers’ needs for supply chain resiliency, regional diversification and growth capacity,” notes TTM President and CEO Tom Edman.

The new, highly automated plant will serve TTM’s global commercial markets including networking communications, data center computing, and medical, industrial, and instrumentation. Being built on 27 acres of industrial land at Penang Science Park, TTM expects to be fully operational there by 2025.