The electronic component supply chain needs digitalization. Automation, artificial intelligence (AI), machine learning (ML), and other digital tools improve an organization’s workflows and operations. Advances in tech are continually improving at a break-neck pace, and relying on anything from old machinery to processes simply because they used to work or still, partially, do could cost companies more than capital.
The global semiconductor shortage and the current state of the supply chain are perfect examples of these challenges. Original component manufacturers (OCMs), original equipment manufacturers (OEMs), contract manufacturers (CMs), electronic manufacturing service providers (EMS) and use many of the same old practices for years, if not decades. Organizations and even industries must be bold in this age.
As an industry on the front lines of the tech revolution, the electronic component industry should be a purveyor of workplace digitalization. Manufacturers especially stand to gain the most the further digitalized a workplace becomes. The main challenge that discourages organizations from moving forward in creating a more tech-integrated space is two-fold.
Time is something that’s consistently in short supply. One that it will take time to implement and adopt digital tools. Dedicating time to learning new workflows or devices that might not provide the results organizations need discourages the willingness to evolve.
Two, some digital tools come with an additional cost. After years of a chip shortage, the electronic component industry has been wracked with price fluctuations. Now, during a period of excess inventory and raw material shortages, companies have to cut capital spending to limit further losses in revenue. Utilizing new technology at a price, especially during a vulturous economic period, is worrisome to many.
The fact of the matter is, going digital is no longer an option. Digitalization has become a precondition for companies to stay competitive. Alongside staying competitive, digitalization offers manufacturers and other businesses new opportunities where none previously existed.
Traditional Processes and Their Faults
The electronic component industry is exceedingly traditional. Specifically, electronic component distribution relies heavily on old processes of component procurement. A few areas rife with traditional workflows are:
In the electronic component industry, Excel is a buyer’s best friend. Unfortunately, it can also be your worst enemy. Usually, buyers keep extensive Excel lists containing every component, supplier, price, and more. Purchasing teams will update these lists weekly, if not daily, to track cost and availability to determine the best offer before buying.
Being a tedious and manual task, these lists are often prone to outdated or inaccurate information due to human error. As a result, buyers often miss opportunities and purchase substandard offers based on these mistakes.
2. Market Monitoring
The electronic component supply chain is one word, enormous. Thousands of OCMs, distributors, OEMs, and EMS providers are a part of this global chain, each impacted by different factors. Each impact sends ripples along the supply chain at different severities. Manufacturers must monitor many factors to stay aware of changing market conditions, market prices, and future constraints or stock surpluses.
Dedicated market monitoring often utilizes the same Excel sheets procurement teams do. These lists could be thousands of components long for a single product due to the rising number of components within various industries. This can take a monumental amount of time and only provide a limited view of the current market conditions.
3. Scheduling Deliveries
Just-in-time (JIT) delivery is creating goods in a ready state or completing their production so that a minimal inventory can satisfy demand and delivery can occur when the customer needs and wants it. The electronic component supply chain heavily relies on JIT deliveries as it costs less in the short term. However, the risks of relying on JIT deliveries are immense.
Automotive OEMs are frequent users of JIT deliveries. Their use of JIT scheduling contributed to the ongoing automotive chip shortage due to canceled orders at the beginning of the Covid-19 pandemic. When demand for vehicles sharply rose in 2021 and automotive OEMs scheduled orders lead times were now weeks long, JIT deliveries were out of the question. This resulted in billions lost in sales and incomplete vehicles from lack of chips.
4. Determining Production Capacity
Production capacity, or the number of chips an OCM produces yearly, is usually determined by prior year sales and market indicators. If, over the year, there is less demand for 7nm chips, then the following year, an OCM will lower the production for 7nm chips. Likewise, if demand increases and the market shows a likelihood of demand rising, further OCMs will increase production capacity.
Manufacturers need a more expansive view of the market and better tracking to determine yearly capacity than the traditional prior-year market demand determination. This can result in several challenges if demand suddenly increases or decreases during the year. These drastic shifts have resulted in the 2020-2022 global semiconductor shortage and the rise of excess inventory during late 2022-2023. This shift from shortage to glut has contributed to the loss of capital, time, and efficiency from sharp changes in the supply chain.
These traditional processes are just a few outdated workflows the electronic components industry relies on. Digitalizing these four processes and using the proper tools to provide better support for purchasing, engineering, and other departments benefits the organization in various ways.
Benefits of Digitalizing in the Long Run
Digitalizing your organization can provide you with many benefits. In a 2023 report by CNBC, research gathered by interviewing 330 data points from 230 customers found that digitization–a piece of the digitalization puzzle–aided organizations in several key areas. Digitization refers to the transfer of information into a digital format.
Companies that digitized saw:
- 75% Maintenance Cost Optimization
- 50% Increase in Productivity
- 50% Carbon Footprint Optimization
- 85% Energy Consumption Savings
- 80% Engineering Costs and Time Optimization
These benefits came simply from taking the step to make information accessible in a digital format. CNBC’s report highlighted, "Greater efficiency can be achieved through integrated and connected technologies such as sensors, app-based controls, analytics, edge computing, and smart machinery. Collectively, they provide intelligent automation and data insights that greatly impact overall performance.”
Embracing digitalization as a step beyond digitization benefits an organization and its customers. In a study by research group Thales, there are five key areas that digitalization improves, but the list extends far beyond the top five. These benefits are:
1. Driving Data-Based Insights
A benefit of both digitization and digitalization is that data becomes far more accessible digitally. Through increased digitalization, better-integrated tools can more accurately collect and analyze data generated daily over the entire electronic component supply chain. Market intelligence tools, such as Datalynq, can help quickly provide decisive insights on market trends from real-time data gathered via a large electronic components e-commerce site. All of which benefit teams in making informed decisions and strategies.
2. Limiting Human Error
Manual data entry can be exceptionally tedious and time-consuming for the staff in charge of handling it. This often puts it at a higher risk of human error, leading to inaccurate or outdated data that can lead to further complications. Digital processes, such as automated data entry, reduce the chance of human error occurring. It also gives human staff more time to dedicate to larger, more innovative projects.
3. Increasing Operational Efficiency
Digital processes can quickly consolidate dozens of manual processes alongside reducing overhead costs by automating systems and product updates, enabling inter-device activation, managing multiple product variants, and more. Automation and predictive analytics can maintain a production line while forecasting future machine downtime and preventing production errors from occurring. Multi-step processes that require a large team can be streamlined efficiently while reducing costs, leaving department teams to focus on more pressing tasks needed for company progression.
4. Raising Customer Satisfaction
Digitally transforming your business often includes creating digital outward-facing materials, such as websites or deliveries. Automation, AI, and other digital tools can give clients a frictionless user experience. Likewise, since digital tools take the stress off staff, it fosters an environment of communication and collaboration across internal platforms leading to faster response times, roundabout communication, and effective idea-sharing. All of these not only aid in increasing employee productivity, accountability, and creativity but also aid customer satisfaction from improved products and excellent customer service.
5. Enabling Future Development
The last and most important area of opportunity digital transformation offers companies is a strong and agile foundation for subsequent growth. Technology is continually advancing, and holding on to traditional processes will only lead to further obsolescence on behalf of your organization. It will take ten times the effort to accomplish the bare minimum a digital company can do, and that gap is continually growing.
Digital environments allow organizations to anticipate upcoming challenges and build solutions preemptively so companies can remain viable for decades. In 2017, McKinsey & Company reported that only 8% of respondents believed their current business model would remain economically viable if their industry kept digitizing at its present course. 92% of businesses recognized that the ability to change and be flexible is critical to keeping up with the competition through a digital transformation.
It’s time to officially bring the electronic component supply chain into the 21st century.
How to Begin
Now that we’ve covered the benefits of digitally transforming your business, it’s time to set you up for success.
Upwards of 70% of digital transformation initiatives don’t succeed, according to McKinsey & Company. However, this statistic shouldn’t discourage organizations from pursuing what is set to become an industry standard. To succeed in digitally transforming your company, you need to do three things.
First, you must establish a digital strategy that defines the measurable goals your organization will achieve through digitalization.
Second, you must fix the current dysfunctions your organization struggles with before you implement a new process on top of it.
Third, you must create a strategy for proper data management and analysis to obtain valuable insights to determine opportunities to avoid getting lost in oceans of insignificant data.
The best way to prevent your digital transformation from failing is not randomly adopting new software or applications. Each must serve a specific function and can be integrated with other platforms that perform other vital tasks for your organization. As new processes are added, transparency and internal collaboration will be crucial to ensure success.
To begin digitalizing your supply chain, you should incorporate a tool that provides multiple features for various solutions in your organization. Datalynq is a market intelligence tool with a 1-to-5 scoring system to water down large amounts of data on component availability, price, risk, and more. Its predictive analytics and alerts solution warns users of upcoming disruptions long in advance, giving organizations time to prepare and document everything through Datalynq’s case management system.
With Datalynq, users can begin their digital journey without automating data collection processes themselves with real-time market data coming from one of the largest e-commerce sites for electronic components. Users can save on time and cost while receiving the same benefits as if they were to establish the software themselves.
Datalynq also offers a seven-day free trial for users to try out the processes to see if it meets their digital transformation strategy goals. If not, then it's at no cost to the user.
Want to get started or learn more about Datalynq? You can contact our team! Our experts are ready to help you revolutionize your supply chain today.