Reshoring could bring positive post-Covid-19 outlook for U.S. electronics suppliers.
Price once trumped everything; customers now realize stable supply chains trump price.
Since COVID-19 broke out in China late last year, the pandemic has provided a daily plethora of shifting information. But one clear truth has emerged for America’s electronic supply chain: Domestic electronics manufacturing is critical to all Americans, now more than ever. It’s time for us to explore faster, more proactive ways to bring it back home.
The “Chinese New Year Factor”
Asia produces nearly 50 percent of the world’s major industrial goods and supplies the electronics industry with majority of our components and final assemblies. Undoubtedly, they have done a great job securing the U.S. as their largest electronics customer.
However, each January U.S. manufacturers get a taste of why this is problematic. All of China’s major businesses shut down for Chinese New Year — including factories. Even though the official duration is seven days, the total downtime is usually around a month, with pre- and post-holiday celebrations and factory closures. We also see quality-related issues during this time, as electronics suppliers are rushing to fill orders before and after the holiday.
American companies deal with these quality issues and turn-around challenges every year. But the COVID-19 pandemic has unveiled just how overly dependent we are on China electronic suppliers – and how risky that can be when Americans’ lives are at stake.
The Impact of COVID-19
The U.S. electronics industry has weathered a double blow. On one hand, our dependency on China has drastically slowed down America’s ability to import affordable components. Everything — from circuit boards and capacitors to switches and semiconductors — is lagging in lead time, and in some cases, is impossible to procure. This puts positive pressure on domestic suppliers to ramp up production.
But on the other hand, American electronics companies are faced with many barriers to meeting these new demands:
- a workforce fearful of returning to their jobs;
- competing with unemployment wages;
- increased costs with no way to raise prices in a hyper competitive market;
- social distancing guidelines that challenge plant floors and processes inflicting production efficiencies; and
- a supply chain still heavily dependent on imported components with increasingly longer lead times as countries experience the pandemic during different times.
Although overall manufacturing jobs have been impacted, we’re fortunate that electronics is a growth industry. The American electronics industry is still alive and well, despite these external challenges. It’s interesting to note that a number of electronics companies that are stepping up to meet demands are experiencing a shift in attitude and perception. It used to be that costs trumped everything. But now customers are realizing that something does trump price: dependable supply chains.
The Ventilator Story
As the virus broke in China, the need for ventilators quickly became apparent. China ramped up production, but as the disease spread to other countries and the demand outpaced the ability to manufacture quickly enough. China has 21 ventilator manufacturers with export permits, but still can only meet about 20 percent of the new global demand.
There are less than a dozen U.S.-based ventilator manufacturers, about half of which are still owned by companies based overseas. Although other countries, such as Italy, quickly instituted wartime mobilization strategies to increase ventilator production, they largely restricted those ventilators for their own use. Many American corporations have launched similar efforts, but their production capacity has been hamstrung by the availability of Chinese components. For example, Ventec, a small ventilator manufacturer in St. Louis, makes only about 1,000 ventilators per year. They ramped up production 40% to meet demand, but it’s a real challenge. Here at ADCO, we’ve also seen an uptick in RFQs, especially from medical device suppliers.
It’s clear that this pandemic is not a total anomaly. Chances are very good that even after we’ve defeated COVID-19, there will be more such crises. The question is, what has this pandemic taught us? And how can we better prepare for the next one?
Reshoring Electronics: A Long Game
Reshoring — the practice of bringing a business operation back to the country from which it originated — has long been an opportunity worth exploring. Now it’s a necessity we can’t avoid. COVID-19 has demonstrated the need to strengthen domestic manufacturing. It has highlighted serious weaknesses throughout our global electronics market and supply chains. Even during the most stable times, the system can be fragile. During this crisis, we’re learning those weaknesses can literally become a matter of life and death.
The problem is, reshoring tends to happen slowly. That’s because the industry’s primary opportunity to increase domestic electronics manufacturing depends in large part on developing a healthy pool of trained, skilled workers. The U.S. needs electronics-savvy plant workers, tooling engineers, manufacturing specialists, and material experts. We’re fortunate that this opportunity is being aided by more and better education in skilled trades and STEM. This, however, is a long-term strategy.
It’s time to explore ways we can ramp up reshoring more quickly. At ADCO, we proudly manufacture 100% of our products in the U.S. and encourage industry and government leaders to find strategies for other American manufacturers to do the same. Asia’s competitive advantage in the U.S. electronics industry isn’t just about cheap labor. The reality is that Asian governments support businesses and economies by creating generous subsidies. The leadership team at ADCO Circuits is hopeful that current and future White House administrations, our legislators, and industry leaders will recommit to bringing electronics manufacturing back home — especially for lifesaving products. We should work toward a goal of having all critical materials such as medical devices, defense, and electric grid infrastructure sourced in the U.S.
The benefits of reshoring are undeniable: job creation, lower shipping costs, fewer production disruptions, and the status of being Made in America. If we start with investments in STEM and skilled trades, then focus our formidable powers of imagination and innovation to shift our collective thinking and explore ways to ramp up widespread reshoring, we can protect our country while strengthening our industry.