Navigating the Supply Chain Impact of Coronavirus
Update 3/18/2020 – The aggressive government actions in the United States and Europe have added to the situation as shutdowns and disruptions are interrupting manufacturing and shipments. Fortunately, China is coming back online aggressively and we have many of our domestically-sourced parts second-sourced with Chinese suppliers. The advice below remains the same – the better long term visibility to demand that we have, the better we’ll be able to ensure continuity of supply.
Coronavirus began to spread in China in late 2019 into early 2020 prior to the Chinese New Year celebration/shut down period for manufacturers in China. The concern over accelerated dispersion of infected people returning to work caused the Chinese government to order factories to remain closed for 2 weeks and, in some areas, longer. Manufacturers are beginning to spin back up but they are not at full capacity, many are seriously understaffed.
This obviously caused delays in shipments and will delay orders that were to be produced in February. The serious concern is that as manufacturers consume raw material, replenishment is impacted so broadly that it is very difficult to quantify the impact. It only takes one component shortage to prevent a product from being produced. In addition, companies pulled in inventory from distribution and anywhere they could find it in anticipation of the coming shortages which is/will exacerbate the situation.
Even (tier 1) suppliers that are not located in China do source material from China. Those that are not impacted by shortages are experiencing a surge in new orders that would have otherwise gone to Chinese suppliers.
The situation is difficult if not impossible to predict short/mid-term and we expect it to be an issue through Q3 2020. We have also started to see price increases from some suppliers…
EmbedTek does carry inventory and prior to the Chinese New Year shutdown, we pulled in months of additional raw material as there are frequently issues. During Chinese New Year, we pulled in several more months of inventory of common commodities across customers and of components with regular demand from customers (motherboards, SSDs, etc).
Given the overall situation, we’d recommend that customers look at adding 8-12 weeks lead time to demand (if they can). Blanket orders are great and we’re happy to be flexible on terms or other aspects to help this fit with our customer’s business.
The clarity of actual orders in our ERP system will provide us clear targets on the customer specific material necessary to help prevent delays in shipments throughout the course of this year.