Written by Mark Bollinger
Smith's annual survey reveals a return to the normal cycles of our industry. Challenges and trends change rapidly in our industry, and so taking the pulse of the global supply chain gives us a chance to ask people directly involved for their views and their evaluation of tools and trends. Read the summary report findings in Smith's MarketWatch Quarterly article.
Smith's annual Global Supply Chain Survey was conducted during December – January as a means of canvassing professionals in the semiconductor and electronics industry who represent its major regions and industry sectors and hold a variety of relevant positions. The intent of this annual survey is to gauge industry issues, viewpoints, and concerns that directly affect the global supply chain and that shed light on component trends and service requirements for the coming year. Some of the major topics covered annually include:
Key challenges and concerns for the global supply chain
The role of Independent Distributors
Sustainability and climate disruptions
Forecast: Technologies and component views
Counterfeit exposure and mitigation strategies
Challenges and trends change rapidly in our industry, and so taking the pulse of the global supply chain gives us a chance to ask people directly involved for their views and their evaluation of tools and trends. Smith collects data from industry sectors that include consumer electronics, medical, energy, and industrial equipment manufacturers. It is not just about the market sector, though; what roles a respondent's company plays along the global supply chain has a significant effect on how he or she views industry dynamics. To assess these differences, we are careful to ensure that our respondents represent Distributors, Electronics Manufacturing Services (EMS), Original Equipment Manufacturers (OEMs), Original Design Manufacturers (ODMs), and Contract Manufacturers (CMs). The full report, A 360 Degree View of the Supply Chain, can be downloaded free from Smithweb.
Major issues and challenges overview
A significant result of this year's Smith Global Supply Chain Survey was the downgrading of economic fluctuations and supplier consolidations, last year's key concerns. This year, respondents identified demand changes, inventory management, and cost-efficiencies as the leading challenges facing the semiconductor and electronics industry. This change in concerns is due, most likely, to the improvement in the global economy over the past year. External, macroeconomic issues not only affect our supply chain, but they also increase instability and lack of consumer confidence, which dampens demand across the board, both for consumers and for enterprise purchases.
The following is a list of the year's issues of greatest concern, or of potential negative impact to respondents' business, ranked in descending order according to the results:
- Demand changes
- Inventory management issues
- Margin pressures and cost-efficiencies
- Economic changes and uncertainty
- End of Life (EOL) issues
- Testing, quality management, and/or counterfeit mitigation
- Supplier consolidations, M&A events
- Regulatory / certification changes (e.g., RoHS, UL, EPA, flow-down traceability, other)
Our survey results are in line with the evaluation of industry and financial analysts who see a return to more "normal" growth patterns and challenges. For the industry, and in this survey, that translates to the return of focus on demand, inventory management, and cost-efficiencies.
IDs hold important supply chain position
When we follow the survey responses to examine services rated as important from IDs, we find further confirmation of this return to focusing on traditional industry challenges. More specifically, respondents underscored the need for IDs to support the challenge of cost-efficiencies by supplying components at best prices and providing inventory management solutions. PPV and Just-in-Time services continue to be among those seen as important in contributing to the best pricing for components.
The relationship between manufacturers' key challenges and the services of independent distributors highlights the important role that IDs play. Furthermore, the data underscore the continued recognition that our global supply chain has significant levels of inherent volatility and uncertainty that require specific solutions that IDs can best offer, but, importantly, only when they are equally able to actively and successfully implement counterfeit mitigation solutions.
In sum, survey results show that IDs continue to hold an important role in the global supply chain, providing strategic services to help offset problems from demand change challenges for companies, which then result in inventory management and component sourcing when forecasts are either over- or underestimated and when time frames for solutions shorten (more details and views offered in the Full Report).
Climate disruptions and Corporate Sustainability Management
Among the variables that affect sudden, unexpected demand fluctuations are climate-induced natural events. Respondents are clearly aware of the increasing threat from such disruptions on their businesses (particularly EMS providers and CMs, who rated a climate-induced disruption as highly likely). The question of sustainability management is increasing in awareness along the global semiconductor and electronics supply chain, with respondents, particularly OEMs and EMS providers, significantly rating sustainability activities as very important.
Clearly, respondents recognize a potential impact on their business from climate-induced disruptions on the global supply chain. Drilling down into the data, there are notable differences in how various types of companies rate the likelihood of environmental disruptions affecting their business. This level of data is important in understanding how to best prepare strategic service solutions to meet the different needs of customers.
- Although overall rating is not the highest, CMs are the only company category to view the likelihood of climate-induced natural disruptions as an extremely likely scenario (37.5%), with an overall likelihood rating of 62.5%.
- The descending order of companies rating climatic-induced disruptions as "Somewhat Likely" to "Extremely Likely" is as follows:
- EMS providers (65%)
- CMs (62.5%)
- OEMs (62.5%)
- ODM providers (42.31%)
- Distributors (41.67%)
Given that companies recognize the negative impact of climate-induced disruptions as likely overall, we asked respondents to rate a set of green/sustainable activities that comprise a Corporate Sustainability Management (CSM) plan to promote environmental awareness and reduce climate change-induced weather events in the future. The activities we selected represent different aspects of CSM, ranging from direct ecological issues to internal company work environments:
- Green asset disposition (recycling, zero-landfill, etc.)
- Industry certifications & accreditations (e.g., ISO 14000, e-Stewards, etc.)
- Green corporate practices and green buildings (Sustainability Management)
- Environmentally-friendly manufacturing practices
- Greener work environments for employees
Across the board, the responses underscore that these sustainability activities are viewed as "Important" to "Very Important."
Forecasting component and technology trends
Also in the realm of forecasts, the survey asked respondents to provide feedback on trends for components and technologies. Supporting growth trends for the industry is the continued evaluation of Mobile Technologies as having the greatest influence on the global supply chain in 2014, followed by Cloud and IoT. Mobile technologies are statistically significantly rated the most likely technology to influence the supply chain this year; that is noteworthy because respondents had the opportunity to spread responses across all category types, meaning the likelihood of a statistically significant frontrunner technology was reduced.
In the aggregated response data, which combines all respondents across all company types, the component categories were ranked as having had "Most Demand" in 2013 as follows:
- Power ICs ("Most Demand" rated by 32.30% of respondents)
- Passive Components (34.16%)
- Active Components (37.89%)
The component categories that followed the above top components were Power, Drivers, and Embedded ICs, closely followed by Processors.
When asked to make demand predictions for 2014, respondents did change the ordering of components they expected to be in demand, with Memory moving up to the top position, followed by Power ICs and Passive Components, then Processors and Embedded ICs. Interestingly, the responses do not have any single category ranked highest as "Most Demand," as was noted in the 2013 question data. Also of interest is the higher ranking of Memory (perhaps a vestige of collapsing both NAND and DRAM into a single category). We also note that the drop in rating of Processors from 2013 to the forecasted 2014 is a significant downgrade. One question arising from these data is whether the lowered forecast strengths for 2014 are related to an overall industry or macroeconomic outlook dampening, or if they are simply a more cautious evaluation.
Given the data rating Mobile Technologies, followed by Cloud and IoT, as influencing technologies in 2014, the rating of component demand for 2014 is logical and conforms with industry analyst predictions, as well. For the data details and deeper analysis, please download the Full Report.
Counterfeit vulnerability and mitigation
Interestingly, when asked to rate the vulnerability of market sectors to counterfeit activity, Distributors consistently rated industry sectors more vulnerable than any other company type responding to the survey. Overall, respondents identified the top three market sectors most vulnerable to counterfeit activity in the following descending order: Consumer Electronics, Industrial Electronics & Equipment, and, finally, Oil & Gas and/or Energy. That is not to say that other sectors are not vulnerable, simply that respondents rated these sectors as currently being more vulnerable than others.
Considering mitigation strategies, respondents were also clear in their evaluation of anti-counterfeiting methods, rating Part Authenticity Testing as the most effective, followed by suppliers and distributors holding standardized certifications and accreditations. Rating these two anti-counterfeiting measures as the most effective demonstrates the hands-on requirement for mitigating counterfeit threats at sourcing and distribution. Having certified and accredited anti-counterfeiting labs, processes, procedures, and trained professionals is at the core of effective and successful counterfeit mitigation strategies.
Because of the importance of anti-counterfeiting to our industry (as for all industries), we offer the drill-down data responses across respondents, based on company type, to understand how these different companies and supply chain sectors view the efficacy of the different anti-counterfeiting measures. Please download the Full Report for these data and insights.
Smith's recent survey reveals a shift in industry concerns that we feel is highly positive. Moving away from last year's anxieties over economic fluctuations and supplier consolidations signals a return to the normal cycles of our industry. External, macroeconomic issues like those that concerned the industry so strongly last year not only affect our supply chain, but also heighten instability in consumer confidence. Moving back to traditional concerns for our industry signals a positive large-scale shift. These findings are directly derived from Smith's 2014 Global Supply Chain Survey and mesh well with the macroeconomic and industry-wide views presented in the wider industry press currently.
Smith recognizes the importance and value in understanding and providing customized solutions for customers' unique challenges and concerns. In addition to providing our customers with the insight to support strategic inventory and purchasing decisions, our annual survey also helps us to ensure that our services remain on-track to deliver exceptional value and security in the volatile global market.
178 respondents participated in this survey, representing a diverse geography. These respondents were drawn from several industry sectors and included Smith customers. Industry sectors included: OEMs (27.84% of total respondents), EMS (26.14%), ODMs (20.45%), Distributors (10.80%), CMs (6.82%), and Other (7.95%) (due to rounding, total percentages may equal more than 100%). Respondents also represented various company roles, including: Purchasing and Sourcing (77.27%), Market Forecasting and Planning (5.68%), Engineering (5.11%), Distribution (2.84%), Design (1.70%), Logistics (1.70%), and Other (5.68%). Responses are aggregated when noted and data are weighted when expressly noted as needed for valid comparisons.
Smith has supported electronics manufacturers for 30 years, and its customers include some of the world's leading electronics manufacturers.
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