Supporting supply chains, workforce skills and well-connected locations biggest challenges for electronics supply chains on the move
Factory space, workers and the availability of components and chemicals are the major obstacles for leadership teams looking to reshore and nearshore electronics manufacturing capacity
While a race is on to find new capacity to manufacture electronics and technology products, suitable locations are at a premium according to new research from Reuters Events, Supply Chain and Maersk, which is free-to-download here.
The white paper highlights how there is a major transition underway in the electronics sector, with companies searching hard for new partners and locations for facilities across the world to re-risk and shorten their supply chains.
This is placing a premium on some of the most popular locations organisations are switching to, such as in Europe, the US and India and Vietnam, where ideal sites can be hard to find and set up.
Some of the most attractive countries for offshoring electronics, most notably Vietnam, cannot keep up with the demand
What companies are looking for
"Some of the most attractive countries for offshoring electronics, most notably Vietnam, cannot keep up with the demand," says Johanna Hainz, Global Head of Technology (AI) for Maersk and one of the many experts featured in the paper. "Often, they are falling behind in providing locations that have the right mix of labour and infrastructure."
It is these two categories that dominate the requirements electronics firms are looking for when it comes to new locations and contract manufacturing partners.
Electronics products can have so many shapes and forms and the life cycle of electronic products is typically only one to two years
Worker skill and availability remain critical for electronics manufacturing as it remains a labour-intensive sector, with significant workforces required for large-scale assembly lines and highly-skilled ones for high-end products.
Furthermore, consumer “electronics products can have so many shapes and forms and the life cycle of electronic products is typically only one to two years,” says Bose’s Head of Commercial Supply Chain Operations Tom de Groot. This makes instituting highly automated production lines challenging in many cases.
That labour is currently at a premium in many locations.
Peter Dressler, Infineon Technologies, Vice President Logistics, Corporate Supply Chain told Reuters that “if you're currently looking into Germany, you already have a lot of problems finding [workers], even in [the logistics sector], which is not the most technical skillset,” let alone for staffing a major semiconductor factory or finding engineers who can service and reprogram assembly line robots.
Then, when it comes to supporting infrastructure, there continue to be shortfalls in many of the locations with the best labour force mix.
Electronics manufacturing sites are hungry beasts, requiring plenty of power and water, especially for wafer fabs. They are also best situated in areas with strong transportation links, as reliability, proximity and speed of transit are vital.
Getting all of those has proved challenging for firms resituating capacity.
For nearshoring destinations, specific countries or regions offer specific challenges
For example, while the paper cites Vietnam as one of the most attractive countries for electronics manufacturers on the move, during a heatwave in early summer 2023 factories around Hanoi were forced to shut down, and there are now questions as to whether there are enough engineers in the country to support the emerging boom.
Likewise, Hainz notes that while some of the overall conditions are right to develop in India and Northern Malaysia, the infrastructure just isn’t there yet.
The issue isn’t limited to Asian countries either, with Reuters reporting finding that companies searching for well-located manufacturing ‘megasites’ in the US are often coming up empty.
“For nearshoring destinations, specific countries or regions offer specific challenges,” notes Sebastien Breteau, CEO for quality control and auditing firm QIMA. “For example, for US buyers, Mexico nearshoring is very beneficial in terms of geographical proximity and an existing manufacturing base, but at the same time, there are infrastructural challenges and security concerns.” Similarly, he notes that factories in Eastern Europe face “often outdated infrastructure” and peripheral countries near to Europe “don’t have a strong history of electronics exports”.
An unstoppable juggernaut
Although there are notable bottlenecks that organisations will need to overcome when shifting electronics manufacturing, the white paper notes the direction is now set. The risks that have become apparent in recent years and the breaks in production for key pieces, such as semiconductors, have pushed reformation of electronics and technology supply chains to the top of priority lists.
This process will be done with a degree of caution, however, given the difficulties noted above.
With all of our core logistics partners we have been going through a selection across the [potential] countries and have been defining what would make sense
For example, Bose required significant preparation and planning when making their recent moves, communicating closely with contract manufacturers in new locations and continuing to have established facilities in China. Only when existing “production cells were running as expected at target levels, did the transfer take place,” says de Groot. This strategy “has been remarkably successful. I was surprised that we started up basically interruption free,” he notes.
Similarly, Infineon’s Dressler emphasizes planning. He notes that a critical factor that they have been “heavily looking into” are their logistics partners and what they are able to support in new locations. “With all of our core logistics partners we have been going through a selection across the [potential] countries and have been defining what would make sense.”
The transition in progress throughout electronics supply chains is therefore going to be a slow and steady transformation over the next decade and beyond, but one that fundamentally transforms the landscape.