Supply chains could recover this year

Supply chains in 2021 may have reached their breaking point, but 2022 could offer some semblance of recovery. Businesses can take lessons learned from last year to start rethinking their approach to sourcing materials and products they need to operate. How can businesses capitalize on the failings from the previous year to ensure that their supply chains fully recover this year and become less vulnerable in the years ahead? It comes down to investing in AI, automation, and machine learning to digitalize the supply chain and supporting the diversification of manufacturing.

Investing in AI, automation and machine

The global supply chain became increasingly unstable during the pandemic, causing a shift in thinking about how to recover and create a more robust future supply chain. Companies are looking to tech to improve processes, reduce time, and create better transparency. Gartner predicted that at least 50% of large global companies will be using artificial intelligence (AI), advanced analytics, and IoT in supply chain operations by 2023.

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By embracing AI, automation, and machine learning, businesses can develop a 360-degree view of the existing supply chain and deal more proactively with potential disruptions. AI can quickly analyze an intensive amount of data in order to provide increased operations visibility and enable better decision making. Artificial intelligence has the power now to do everything from demand-forecasting models to end-to-end transparency. For example, AI can alert businesses to how an upcoming severe weather event will disrupt the supply chain and make suggestions on how to counteract bottlenecks in real time.

By being able to predict disruptions to transportation, positive or negative demand shocks, and production issues, companies can intervene and adjust their supply chain processes in a more timely manner. The payoff for investing in this technology will be huge. McKinsey estimates that early adopters of AI-enabled supply-chain management have improved logistics costs by 15 percent, inventory levels by 35 percent, and service levels by 65 percent, compared with slower-moving competitors.

Localization and diversification of manufacturing

Chip manufacturing needs both localization and diversification. There is a reliance on a few key geographies for manufacturing that leaves the supply chain vulnerable to disruptions in those areas. For example, if China were to stop shipping PCBs, the world would have a dire shortage. Companies previously moved their operations abroad for greater profit and now efforts are being made to bring manufacturing back closer to home. A study by the European Commission found that Europe is ‘highly dependent’ on China, Vietnam and Brazil for imports, especially in areas such as batteries, raw materials, and semiconductors. In response, the European Union, like many other governmental bodies, has increased its efforts to bolster its supply chain resilience through policies to support the creation of more diverse alternative supply chains.

COVID-19 exposed the global supply chain’s underlying issues and lack of resilience. For our supply chain to fully recover long-term, companies need to invest in the latest technologies while governments worldwide should support the localization and diversification of manufacturing. Without the integration of technologies that allow greater visibility to a variety of effects, as well as geographically more diversified production chains, businesses will continue to experience the downsides of the fragility of global production. Accelerating the utilization of AI technologies and beginning to reconfigure the supply chain to be more diversified will have significant long-term payoffs in creating a more resilient, secure global supply chain.

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Every quarter, Sourcengine publishes a comprehensive lead time report covering the electronic component industry.

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