Why supply and demand remain unbalanced, even in the connected world

Note: This is a guest post written by Barbara Jorgensen, managing editor, Electronics Purchasing Strategies.

Barb has more than 20 years’ experience as a journalist, working for leading electronics industry publications such as Electronic Business, Electronic Buyers’ News and EDN. As a freelance writer, Barb wrote and managed an award-winning custom publication for Sager Electronics; was a leading contributor to Avnet Global Perspectives magazine; was a regular columnist for the National Electronics Distributors Association monthly newsletter and wrote for industry associations such as IPC. Barb was also a featured blogger on the B2B Website Allbusiness.com and helped launch Electronics Sourcing North America, a start-up magazine serving purchasing professionals in the Americas.

Prior to her freelance career, Barb was a senior editor at Electronic Business, the pre-eminent management magazine for the electronics industry, featuring world-class manufacturing companies such as Dell, Hewlett-Packard, Cisco and Flextronics International. Before joining EB for the second time, Barb spent 6 years with Electronic Buyers’ News as managing editor, distribution, winning several awards for coverage of the distribution beat. A graduate of the University of Binghamton, Barb began her journalism career with the Gannett newspaper chain. She has worked for a number of local newspapers in the Greater Boston area and trade journal publishers Reed Business Information and UBM.

Barb can be reached at [email protected].

Why supply and demand remain unbalanced, even in the connected world

With the advent of the internet and social media, it would seem that the supply chain has more opportunity than ever to collect and disseminate information. In the electronics industry, component makers, distributors and OEMs communicate in traditional ways: EDI, Excel, the internet, extranets, MRP/ERP systems and good old-fashioned e-mail; along with cloud-based platforms, Twitter, Facebook and other social media.  It’s impossible to NOT be connected. 

Yet, component suppliers and contract manufacturers say that that OEMs’ ability to forecast is worse than it has ever been. OEMs still can’t predict their customers’ demand. Component suppliers—many of which have a minimum of 16-week lead times for production – often end up with too much product. Distributors pick up the slack, but as soon as inventory starts to build in the channel alarm bells go off.  With so many opportunities for communication, how is this possible?

There are a couple of industry dynamics that could explain this. First, it’s been at least a decade since the electronics industry has seen any kind of significant shortage. Spot shortages cropped up following the Japan tsunami and Thailand floods of 2011, but nothing that could be termed industry-wide. Buyers have become accustomed to getting what they want when they want it. Moreover, the internet has made inventory and pricing information available to anyone with a search engine.  Components appear to be available 24/7, 365 days a year.  The urgency to forecast has diminished.

Then there is lean, just-in-time and build-to-order. All of these practices have effectively shortened the time between order and fulfillment.  In practice, OEMs are working with an actual order – not a forecast – and the correct number of components is stored nearby. Lean has diminished the levels of inventory in the pipeline, so as long as everything is flowing as planned, there shouldn’t be any surprises.

Finally, the supply chain has figured out that it has to be more responsive and nimble regarding last-minute changes. In order to respond to JIT and BTO, inventories have to be maintained closer to manufacturing sites. Instead of single mega-hubs, suppliers and distributors have warehousing in key regions of the globe, and utilize third-party logistics when necessary. The ability to respond within 24 hours is a reality in most parts of the world.

 So why are supply and demand in a state of perpetual imbalance? It’s not a dearth of data. Partners don’t necessarily trust the information they receive. Distributors routinely compare customer forecasts to historic orders to see if something is out of whack.  Certain types of information are still withheld from partners: OEMs don’t share their preferred-pricing agreements with EMS. Online inventory is treated with a grain of salt: depending on how often data is refreshed, parts may or may not available at the price at which they are listed. Social media seems to be best used during disasters and for taking the pulse of market—what is trending and what is not.

Not sharing certain types of information is considered strategic by companies in the supply chain; and double-checking forecasts is a responsible business practice.  However, these practices mean the supply chain may never be transparent.   Information may be more available than ever, but visibility of data is an entirely different matter.  Yet, even lack of information is no longer a problem in the supply chain, but full visibility remains elusive.