[2024] Supply Chain in the Electronics Industry: Challenges & Change

For sourcers of electronic components, life pre-2020 and post-pandemic must feel like exactly that – two separate lifetimes. 

Heading into 2024, the industry is at a crossroads.

A who’s who of supply chain challenges in the electronics industry (war! COVID!) have lingered longer than anyone would like. But there are signs of recovery, and new opportunities, too.

Here are the top trends experts are forecasting for this next year, plus insights for businesses navigating these turbulent times:

7 Predictions: Supply Chain Gains & Challenges in the Electronics Industry 

Based on market and supplier analysis, expect these to be the top-seven trends in component sourcing in 2024:

1. Higher threshold to stay in the supply stream
2. Yes, there’s still a shortage
3. Reshoring’s viability
4. Cybersecurity risks
5. AI, automation, & more
6. Raw materials
7. Labor challenges
   
   

1. Higher Threshold to Stay in the Supply Stream

For the past 5 years – even during COVID – suppliers were in acquisition mode, buying up distressed companies to make their component lineup wider and deeper. While they weren’t the resident experts on their new products, they knew enough about the electronic component industry and its trends to sell them.

In recent months, this has shifted – instead, more suppliers are consolidating due to cost structures. 

Some of it’s related to reshoring (which we’ll touch on below), but a lot of it has to do with uber-specific operations and volumes. Now, manufacturers – and even customers – are buying companies in their supply chain that are thriving and have the bandwidth to help them produce 4x more.

The problem for OEMs and other component customers is that this can lead to redundancies.

Project managers exist at all of these manufacturers. The ones who are new to the company, along with their finance teams, are the ones making customer-unfriendly calls: 

• Accelerating end-of-life for parts
• Killing entire lines that aren’t huge money-makers
• Cutting services and staff 

These practices affect how distributors communicate with suppliers, and they affect the supply chain as a whole. We’ve seen a supplier shut a customer down because it couldn’t bring in $100 million a month. (Fortunately, the customer realized it wasn’t the distributor’s fault.)

A strong distributor relationship can help you avoid supplier drama in 2024. Nobody wants to hear, “Do a last-time buy, or you’re outta luck,” so lean on your distributor to introduce viable plan-B (and -C) component supplies.

One positive of this supplier trend? Manufacturer reps have more jurisdiction, and there’s less red tape. Starting with that positive, you, your distributor, and its manufacturer network should be able to come up with stable supply solutions.

2. Yes, There’s Still a Shortage

Today, more products are using more parts. Forecasts call for the global electronic component market to balloon from $186 billion in 2022 to $329 billion in 2031.

With more products including more electronic or “smart” elements, there’s more sourcing competition for industrial and infrastructure B2Bs, who still need their slice of the supply pie. The early 2020s’ pandemic and political conflicts (see: Israel, a major semiconductor maker) have only piled on the difficulty. 

The universal truth is: There will still be electronic component part shortages in 2024, even though demand dipped and production grew over the past year.

No matter what components you need, you must learn to align with a supply stream that doesn’t always seem to want to align with you. Trend #1 above is showing this. We’re seen $27 million branches of a manufacturer shut down seemingly overnight. Some suppliers are evolving into monstrosities that simply aren’t the same company you once knew and loved, growing so big they need to consolidate.

This is where multisourcing the same component and use of a distribution partner are smart defensive strategies. The right people, processes, and database software can optimize your order flow – and even your design, if necessary – for a more stable operation.

3. Reshoring Is Viable Again

Empty promises no more, the wheels are finally turning on bringing more electronics manufacturing projects back to the United States.

Offshoring began in the 1960s, became a formal business strategy in the 1980s, and blew up in the 2000s (as internet use exploded worldwide). The reason is no secret: Labor was significantly cheaper overseas.

That’s still partially true, but since 2020 and COVID, the electronics manufacturing supply chain has crept back toward home little by little. Why? Because the cost of doing business in the electronics industry amounts to more than just labor.

Reshoring (or nearshoring) component sourcing addresses these challenges:

• Operational costs: Tariffs, customs, & labor prices have grown costlier in traditionally cheap countries
• Disruption resilience: Global political tensions, natural disasters, & health crises have made it riskier to source far from home
• Quality control: Onshore suppliers give more consistent results because they avoid language & cultural barriers
• Lead time & response: Fewer or no gaps in time zones and languages to hinder communication & delivery
• IP protection: U.S. suppliers are generally more vigilant in protecting customers from idea theft & cybersecurity lapses

That’s not to say new domestic production lines are springing up by the minute.

It takes time to source machinery and materials, build facilities, and find people willing to work in them. Even with government agencies offering incentives for new construction, it takes at least 2 years to get a plant up and running. 

Still, there are real signs of reshoring progress. Joining the trend may make your electronic supply chain management easier to wrangle in 2024.

4. Cybersecurity Risks

Onshore or offshore, protecting your digital assets – and your customers’ – is more important than ever.

The average cost of a manufacturer cybersecurity breach was $4.47 million in 2022. You’d think electronics manufacturers would have a better lid on this tech threat, but that’s not always true. Many don’t keep up with the latest cybersecurity priorities, leaving them open to emerging exploitation tactics.

We’ve watched multiple customers shut down their platform completely after an attack because they can’t request materials or pay their distributor bill. This devastation can happen to suppliers, too.

Here are some of the ways electronics OEMs are protecting themselves heading into the cloudy (and cloud-based) future:

1. Verifying that the latest plant security procedures are in place for them and their partners. These include secure portals and networks with data backup, as well as strict storage and clearance for digital and physical documents.
   
   
2. Investing in cybersecurity insurance. Spending $15,000 on a hypothetical might feel frivolous, but if a hacker strikes, that $1 million in coverage is a bargain.
   
   
3. Auditing themselves. Security experts recommend that you hire a third party to try to “ethically hack” you at least annually. Penetration testers can find vulnerabilities in your system before actual bad guys do.
   
   
4. Making cybersecurity a budget line item. Cyberattacks are ever-evolving. Shoring up security should be in your plans not just next year, but also every year after.

Cyberthreats are scary to even think about. Nonetheless, more OEMs are opening their eyes to the importance of safeguarding reputation and customer trust by investing in strong security.

5. AI, Automation, & the Rise of Machines

Manufacturers and sellers freaked out when products started going wireless in the 1980s. It ended up being an unfounded concern – plenty of companies sell more wire today than they did all those decades ago.

So, where does the truth lie with concerns about digital and physical robots becoming the be-all, end-all?

Probably somewhere in the middle.

Artificial intelligence – AI – is moving into almost all types of business at an exponential rate. Specific to procurement, AI could very well reshape the process with sophisticated data analysis and predictive capabilities. 

However, for those who don’t have a million dollars laying around to make this happen in-house, AI isn’t yet a universal solution. Smaller companies or those with tighter budgets still need that personal touch and expertise. Overreliance on a process devoid of human thought can lead to missed creative solutions. 

Similarly, the online catalogs and self-service platforms popping up recently probably can’t address nuanced business needs. They might cater well to high-volume transactions, but can they save you warehouse space or predict last-time buys?

Don’t get the wrong idea – progress is good. Automation advancements could make it more likely that a manufacturer keeps a series of parts in production. Even controversial blockchain networks (like Bitcoin) could have a continued home in the supply chain as a single source of truth for component tracking.

While AI and automation could someday dominate electronics supply chain news, don’t throw your team or your distributor in the trash yet. There’s still plenty of space for personal interaction and custom solutions.

6. Raw Material Pricing & Availability

As the industry recovers from COVID and other, less literal illnesses, electronic component lead time trends are hinting at 2019 levels – almost.

This is the most obvious and welcome sign of a healing supply chain. However, a full return to pre-2019 efficiency still faces a few roadblocks.

The industry is heavily reliant on materials that predominantly come from overseas. Copper and FEP (fluorinated ethylene propylene), in particular, are notable hot-button materials for cables and their insulation. These materials could very well stay in high demand throughout 2024, creating price and availability uncertainty.

An ongoing shift toward new technologies could also impact material availability amid volatile demand and political strife. New products – and new machinery to make them – sometimes put a heavier burden on the maker’s raw material supply. Combine that with the lingering war in Ukraine – which produces at least 90% of the U.S.’s semiconductor-grade neon – and you’ve got problems.

Electronics makers will look to stay agile in 2024, seeking new suppliers and exploring alternative materials where possible.

7. Labor Challenges

The electronics manufacturing industry has some serious labor challenges (Who doesn’t?), particularly in rehiring skilled workers who transitioned to other sectors. Small businesses grapple with offering competitive benefits, and there's an ongoing “brain drain” as skilled boomers age out of the workforce.

Salary and company culture aside, part of the challenge of employee retainment is instability in the demand for labor based on market surges and slumps. This ever-changing level of need means companies have employees sitting on the sidelines during low tide … or scrambling to shore up staff when demand surges.

Partnering with a dedicated, 3P distributor is a logical solution for taking labor woes out of the sourcing equation. It alleviates the need to constantly scale your in-house staffing up or down, and it allows you to focus on core competencies and strategic growth.

Gearing Up for 2024’s Component Supply Chain Issues

Forces of nature, human nature (war), and technology have already put their imprints on 2024. Suppliers know this and are taking advantage of it. Are you ready to adapt accordingly?

Support your electronic components supply chain by:

• Investing in safe, value-adding technology
• Keeping human relationships first – at both the supplier and distributor levels
• Taking a proactive outlook on material, component, & labor

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