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.

Not to diminish the very real and devastating aspects of Covid-19, but the industry has been building or attempting to build in preventative and protective measures for years, and I am eager to see how these plans play out.

I expect wild swings. Not on the level of what happened following the natural disasters in Thailand and Japan, of course. In those instances, auto production in Japan alone jumped 20% the first year after the earthquake, as consumers replaced their destroyed vehicles, then plunged to 1.3% growth the following year. In this case, some inventories will be depleted, but replacement of end-products won’t be a driver. Most national economies had been puttering along for the past several years. This won’t help. The loss of wealth due to crashes in most of the world stock exchanges, coupled with the loss of income due to worker furloughs or layoffs, will stifle some of the demand that will be needed to revive factories to full capacity. In crisis situations, consumers buy staples. Just look at your local Wal-Mart: Plenty of TVs and PCs can be found, but the food and paper goods aisles are cleaned out.

Going back to my start in the industry in 1991, just-in-time inventory management was in vogue, at least among consulting circles. (The actual shop floor was another matter.) Software capable of tracking and traceability was just starting to appear. Most inventory controls were primitive, however. Visibility outside the factory was limited.

Fast forward to 2000. I recall a long talk with the head of Viasystems’ supply chain, whose stated goal – besides becoming the dominant player in electronics manufacturing – was to be able to see five layers in either direction, basically from the mines all the way to the landfill. Neither vision was met.

Likewise, we’ve heard for years about the promise of concurrent engineering. Yet, due to various governmental, networking and patent constraints, distributed engineering is far less common than it could be.

And I’ve been through at least three major component inventory crises, in one case where parts were in such short supply major assemblers were openly searching for available spares on social media. Yikes.

I’ve often felt our industry has the best finance managers around. How else can they stay alive on miniscule margins in a cash-intensive industry known for slow payments? Still, the Electronic Components Industry Association (ECIA) says 70% of the component manufacturing sites in China were affected by Covid-19. Most have only two to three months of cash in reserve, ECIA added. Their resolve – and financial acumen – will be supremely tested.

I have many questions over what might happen in the coming months:

• Will this spur the industry to lessen its dependence on China?
• If so, where will production migrate?
• What will be the impact on inventory levels? Will this cue a new trend toward higher inventories?
• Can companies whose balance sheets have been disrupted by unplanned shutdowns afford to take on higher stock levels?
• Will nations and companies be inclined to ease controls over digital data transfer and bring networking capabilities up to par? And what are the IP implications of doing so?

Inventory decisions are cyclical. Historically, when the industry has been faced with supply issues, it responds by raising stocks. We’ve been better at it of late. Two years ago we stared down a worldwide undercapacity situation and didn’t lose our minds.

Surely we will study and learn from this shutdown. For a change, I think we are well-positioned to weather the initial storm. My gut tells me supply chains are unlikely to up and move due to Covid-19, because unlike earthquakes and typhoons, when it comes to pandemics there is nowhere to hide.

• Prev
• Next