The disruption to global supply chains over the past 18 months has wreaked havoc on a multitude of industries, ranging from building materials and cars, all the way to smart devices. Significant cost increases, a limited supply of critical chips, and longer shipping and lead times have combined for an estimated negative impact on the US GDP by more than 1% and affected more than 169 industries.
A global chip shortage has slowed the production of everything from automobiles to consumer electronics, causing supply constraints for everything from the latest smart phones and highly coveted video game consoles to Ford F-150s and Chevy Corvettes. The various goods produced with these chips account for 12% of the US GDP, with major chip makers predicting that the shortages could last through 2022. As a result, production across the automobile industry alone has fallen by 2-6%.
This shortage has driven the costs of the limited volume of components that are still available up by 2-3x in the past 12 months, eroding margins across almost every industry. In addition, dramatically longer shipping and production lead times have further complicated supply chain security, resulting in up to 60-week delays for essential pieces of technology, like routers.
So, what does this mean for the business of enterprise technology and the multitude of clients, verticals, and industries our work supports? To start, helping understand the long-term needs of clients has never been more critical for accurately forecasting and predicting the needs of supply chains. A precise, detailed vision of clients’ present and future business technology needs presents the opportunity to frame the expectations of key stakeholders. And helping clients plan to combat increased costs and longer lead times builds trust and the opportunity for creative brainstorming to work around these challenges. However, this solution does not fully address the overarching matter—not HOW our goods and their components are produced, but rather WHERE.
China, as the primary global manufacturer for most essential industries and businesses, and Taiwan, as the primary producer of the semiconductors, chips, and other necessary manufacturing components, have tremendous control over this ecosystem. Because of the broad availability of low-cost labor and production facilities, China emerged in the 1990s as the global manufacturing capital. However, as COVID-19 shut both countries down for months, the entire manufacturing sector, upon which the world had been so heavily reliant, also ground to a halt. The rising political tensions between the United States and China have further contributed to the current precariously balanced relationship. As a result, companies now face the difficult task of navigating shortages and shifting political tides, without a strong domestic manufacturing option as an alternative. Additionally, security issues have become prevalent in Chinese-produced devices and software, a concern that is causing serious unease to companies around the world.
The current geopolitical manufacturing climate described above not only makes the case for reshoring much of our technology production, but it also presents a strong argument for the shift to private label, custom devices. Such devices are designed to the specific needs and use cases of each client, and their long-term availability offers a compelling alternative to the current market volatility. Furthermore, creating custom, private-label devices overwhelmingly allows clients the ability to both dramatically mitigate costs by building something tailored to their needs while escaping the rising costs and lead times across the sector as supply and demand remain disjointed.
As major industries like the healthcare sector are shifting to a domestic production mandate for the core technology that drives their business, strengthening US technology manufacturing has never been more important. More and more clients are looking to take complete control of their supply chains so they can share the benefits of an obvious upside: significantly lower unit costs, the ability to pre-purchase critical components, and the luxury of dealing with a domestically headquartered company that can be held accountable when needed. Increasing the ability to produce essential components like semiconductor chips domestically means reshoring other upstream component manufacturing as well, such as the technical schematics that power both off the shelf and private label enterprise devices. Given the impending Chinese takeover of Taiwan that looms precariously over the tech world, the question is not if the US can build out the necessary domestic supply chains, but rather when and how fast.
KEY TAKEAWAYS
- A global chip shortage has slowed the production of everything from automobiles to consumer electronics, causing supply constraints for everything from the latest smart phones and highly coveted video game consoles to Ford F-150s and Chevy Corvettes.
- Helping to understand the long-term needs of clients has never been more critical for accurately forecasting and predicting supply chain needs. A precise, detailed vision of clients’ present and future business technology needs presents the opportunity to frame the expectations of key stakeholders.
- Creating custom, private-label devices overwhelmingly allows clients the ability to dramatically mitigate costs by building something tailored to their needs while escaping the rising costs and lead times across the sector as supply and demand remain disjointed.
This article originally appeared on Digital CxO at www.digitalcxo.com/article/domestic-private-label-manufacturing-and-why-it-matters-to-supply-chains/
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