Member organisations in the International Distribution of Electronics Association (IDEA) have had to radically alter their operational practices during the current COVID-19 crisis. Their primary concern remains the avoidance of infection for their workforce and their families alongside the wider community but the maintenance of good customer support is both desirable for the economy and essential for their organisation. According to IDEA, chairman Adam Fletcher, members are doing a great job of ensuring full compliance with both their legal obligations and the evolving directives issued by governments and the public health authorities in all the geographies in which they operate. In this article Fletcher outlines the measures members have taken to date and shares some thoughts on how the electronic components market needs to organise themselves to embrace the inevitable changes engendered by the severity of the current crises and hopefully emerge stronger at its conclusion.
by Adam Fletcher, CEO of ecsn and of IDEA
A people business in the electronics industry
The electronic components supply network is a customer service business and despite digitisation of many of the processes it remains ‘a people to people business’, whether that be internal or external to the organisation. Organisational leaders recognise the benefits of transparent communication. Discussions might have to be opened across the entire organisation and its supply network partners and decisions arrived at that meet the long-term needs of the organisation in its environment, even when some short-term results may negatively impact profitability. Strong, long-term interpersonal relationships have always encouraged prompt engagement with problems as they emerge and go a long way to enable the effective responses that lead to a successful resolution. Employees, customers and business partners tend to remember organisations that did “the right thing at the right time” and are encouraged to be positively aligned with them.
Working from home
At the current time “isolation” is the name of the game. For many people with administrative functions, i.e. sales, marketing, engineering, applications and finance working from home is nothing new. For ‘newbies’ setting up a VPN and diverting email traffic is a relatively simple process. It’s also quite easy to divert a direct-dial number to the respondent’s home or mobile telephone number but things are not so straightforward when the public are used to dialling a generic phone number, which then gets routed to the person they need, but this too can be done. Customers calling electronic component manufacturers and their authorised distributors are accustomed to getting their calls answered in two-rings but in the current circumstances hopefully understand that they will probably have to wait a little longer as their call is re-routed. They may also have to endure a little additional ‘home life noises’ as the conditions the respondent is working in are probably less than ideal. The good news is that IDEA members have resilient IT systems in place and in general terms, their domestic broadband infrastructure has ample bandwidth to facilitate efficient remote working. Some commentators are suggesting that the current crisis may encourage organisations to abandon offices altogether in favour of home working, but I disagree. There are many benefits (mutual support, background information, faster communication etc.,) and subtleties such as comradeship and humour that are denied to a person working in isolation, not to mention the possible effect on their effect on their mental wellbeing. I do however hope that in future employers will adopt a more flexible approach to increased home working and let their employees decide on how a reasonable balance that benefits all can be achieved.
Manual operations such as manufacturing and stores operations require employees to be at a defined workplace. Here too safety is paramount, but it does present employers with a different challenge. There has been an increased emphasis on environmental hygiene and the two-metre separation rule is being rigorously enforced but production bottlenecks might still occur, especially if many staff become incapacitated. Fortunately manufacturers usually maintain a reserve of trained staff capable of completing multiple tasks even in complex manufacturing operations and this goes a long way towards ensuring that critical quality standards, training, safety and maintenance are upheld, whilst achieving levels of labour flexibility that may go beyond previous operational norms and work practices.
Electronic components inventory and supply
Electronic Components Manufacturers and their Authorised Distributors base their inventory holding on a combination of their customers’ historic usage data and their best estimate of the short-term needs of all their partners. IDEA members are confident that they have sufficient inventory in stock for at least 6 to 8 weeks based on customer average use data even assuming there is no replenishment. Shipments from components manufacturers to their Authorised Distributors are currently proceeding satisfactorily. The quoted manufacturer lead-times for most electronic components has extended from 4-to-6 weeks to 8-to-12 weeks, which in the current market conditions was to be expected. A very small number of ‘multiple sourced merchant market commodity products’ i.e. MLCC and some passive components are on extended lead-times of 20+ weeks, but I expect this to begin to normalise over Q2’20. Any minor shipment delays that occur with some items will merely be absorbed within the overall inventory buffer. Customers are being kept up to date with the latest delivery information from their channel partners, who are updating their websites daily to reflect the evolving situation and prominently posting their organisation’s response to any issues as they arise.
IDEA members report that the majority of their customers continue to operate at near normality and are continuing to request on-time delivery of their scheduled orders. Any rescheduling back of customer orders is being offset by other customers – especially those making critical medical or infrastructure products – pulling their deliveries forward and increasing their order cover. This situation may change if governments tighten the definition of a “key worker” or further restricts the movement of its citizens to reduce the virus spread or if there’s further breakdowns in the JIT material systems operated by Tier 1 customers, but this threat is already beginning to recede.
Last mile logistics
Almost all organisations in the electronic components supply network are reliant on third party logistics providers, be that for shipments by sea, land or air. There has been extensive delays in all shipments out of China following the COVID-19 population lockdowns, but it appears that the country’s draconian response to the outbreak has worked and shipment volumes are rapidly increasing. In Europe the closure of some national borders has badly delayed road freight, but this is also now improving. The major of air freight carriers are ramping up their capacity to move time-critical goods, but it is an increasingly expensive shipment option. Locally the ‘last mile’ delivery by carriers remains generally good but there are limits on the volume and weight of packages that local carriers are able to ship through their systems. Manufacturer authorised distributors and their customers are painfully aware of how dependent they are on a continuation of this delivery option but customer confidence has been boosted by the enhanced visibility provided by their international package tracking systems.
We’re all in this together
It seems likely that all organisations in the electronic components supply network will struggle to manage their revenue stream over the next few months, so the maintenance of a positive cash flow is crucial. All parties must continue to pay their invoices promptly but, in the event, that they run into a cash flow problem it’s important that they communicate the situation with their partners quickly and honestly. We’re all in this together and reaching an amicable resolution through discussion is a lot better than any alternative. The mutual and honest sharing of business intelligence will go a long way towards mitigating the effects of COVID-19 on the UK’s electronics manufacturing industry.
“Keep Calm…” The current situation has been likened to a war but that’s just some misquoted political rhetoric, we are in a much more controlled environment and I’m confident that there is no need for any panic. We just need to don our metaphoric “tin hats and flak jackets” and ‘Keep Calm and Carry On’. The current challenges presented to all in the electronic components supply network by the Covid-19 pandemic will recede into history. It’s what we all do together over the next couple of quarters that will significantly improve the outcome for our people, organisations and the wider economy.