The ongoing electronics shortage is one part of a wider global supply chain crisis. While the usual issues with the supply chain were first exacerbated by the Covid-19 pandemic, emerging challenges continue to threaten it. In some cases, lead times have elongated by more than a year of factory lead time. That’s why 2023 is the year that many companies in the EU will look seriously at reversing their decades-long policy of trade globalisation and begin reshoring and securing their supply of vital electronic components.
Market dynamics and the key motivating factors for reshoring
Major challenges over the last couple of years have had an enormous impact on supply networks and global trade. The volatility in energy prices caused by the Russia-Ukraine war have reverberated across the global supply chain resulting in higher transport and production costs to basic procurement challenges.
The ongoing Covid-19 lockdowns in China have also drastically reduced manufacturing output in key production hubs like Shanghai and Shenzhen, which has, in turn, limited the availability of critical electronic components like microcontrollers, MOSFETS, and many broadline manufacturer products in electronic merchandise such as fans, mains inlets and power supplies. Whilst low-cost economies in Asia (China) have historically been chosen as locations for manufacturing or key supply partners, significant salary inflation, ESG issues and quality concerns all are contributing to make Asia less attractive as part of critical manufacturing supply chain.
There are also geopolitical factors at play between the U.S. and China over the so-called “Chip War” which has seen both sides restricting access to each other’s markets – affecting global trade.
General manufacturing shortages aside, at a national level, the Covid-19 pandemic itself highlighted the serious consequences of not having secure supply chains. For example, in the UK, there was a critical shortage of semiconductor components for medical equipment like ventilator systems. The catastrophic nature of shortages of vitally needed components in this sector were clearly highlighted for all to see.
What are the EU and UK doing to support reshoring?
Current market conditions are causing the EU and UK to invest in securing their own access to electronic components. The EU recently announced plans to invest in a €45bn chip plan which aims to boost EU chip production. The European Chips Act will support Europe’s competitiveness and resilience while reducing reliance on semiconductor chips from the US and China. This move clearly demonstrates Europe’s desire to secure its own supply of electronic components.
Benefits are already being realised
Where it is possible, reshoring manufacturing has some obvious and very immediate effects on improving supply chains by limiting exposure to global uncertainties. For example, as well as reducing the obvious transportation time and cost, domestic production allows for a closer relationship between the manufacturer and the supplier which in our experience generally results in tighter lead times and better price forecasting abilities.
Product manufacturing that takes place closer to home also benefit from a more predictable legal framework which makes it safer and more reliable to conduct business. The EU and UK have some of the strictest intellectual property laws internationally which is important during the R&D stages of component design. This minimises the risk of intellectual property theft which costs companies hundreds of billions of US dollars every year.
Prototyping, designing and new product introduction is easier and with greater response when you all operate in the same time zone. Quality control will also become easier without the need to have an international solution for inspection which is being made or the more challenging due to ongoing lockdowns. Due to the supply chain crunch, many manufacturers have had to source components from the so called ‘grey market’ where counterfeit products are widespread. Prioritising reshoring increases transparency and control over counterfeit products. It also avoids last minute component swaps sometimes experienced with factory production far away overseas, where parts are in short supply or cheaper options are used that result in a sub-standard product being delivered weeks later which are costly and time intensive to fix.
Increasing transparency over electronic component supply chains also make it easier to track a company’s carbon footprint and adhere to the EU and UK’s climate commitments.
Reshoring won’t work for every company and there are many considerations to making it work. However, it is worth careful evaluation as it can deliver some substantial benefits, and in our view, the UK has the capacity to cope with the level of onshoring needed to secure the supply of its vital technologies.
Gary Mitchell, group CEO, Techpoint
Nanogenerator consumes CO2 to generate electricity
Whoopee, they've solved how to keep a light on but not a lot else.