We left off last month commenting on the effects of Covid-19 on the supply chain and offering questions – and some opinions – on what might happen next. Interestingly, the real ugliness might not have hit yet. Anticipating the traditional supply drop-off during the Chinese New Year, most companies boosted inventories ahead of time. By the time China turned the lights back on, in late February/early March, the West was starting to slow, leaving stocks in a relatively decent position.

So far, so good.

Where China will feel it most, I think, is over the next two months, as Western demand lags and China’s domestic-based suppliers pull back so as not to overstuff the supply chain. Already, we are starting to see some layoffs in Southeast Asia. If that region has to sustain another wave of Covid-19, look out. The chain could be in for a wild ride.

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Remember 2010?

That year, a massive earthquake in the Pacific Ocean led to a tsunami of biblical proportions. Much of Japan’s semiconductor and electronics manufacturing industry was taken offline for nearly two months.

About 12 months later, it was Thailand’s turn in the wringer. The so-called 100-year floods swamped most of the country, causing nearly $50 billion in damage. In doing so, they took out major assembly operations at Fabrinet, Benchmark Electronics, Kimball and SVI, among others, upsetting a major link in the auto electronics and optical component supply chains.

Covid-19 has hit the electronics supply chain with all the force of those two natural disasters. The industry response will be fascinating.

This is the ultimate stress test. Coming on the heels of the Chinese New Year, where employees had not yet returned to work, the shutdown lasted four to six weeks in China. It’s a double whammy.

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In 2018 the US Department of Commerce conducted an industrywide survey of all the nation’s printed circuit board manufacturers. Fabricators groused about the scale of the paperwork, which was massive, as well as the focus of the questions, which in many cases required extraordinary data mining to provide the sought-after information. Still, the rationale for the Bare Printed Circuit Board Supply Chain Assessment was sound: That American PCB capacity issues extend beyond military needs into the medical, automotive and telecom sectors, and that Washington was largely unaware of the degree the nation’s supply base has degraded relative to the rest of the world over the past two decades.

The findings made it into an interagency report titled “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States” and was provided to President Trump that same year, showing bureaucracy is still capable of moving at times. Even better, they correctly summarized the situation:

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