The electronic components industry has seen a rollercoaster of movement over the last few years. Ups-and-downs became the norm, and navigating change became an everyday practice. However, those that have been through the commotion of late are now better positioned to succeed in the future as adaptation has been engrained as a necessity for survival. But businesses don’t want to survive—businesses want to thrive. Thankfully, there are ways in which organizations can prepare for the road ahead and pave a path of success as they traverse the unknown says Margaret Cunha, Senior Director of Supply Chain Solutions at DigiKey.
Closing Out 2023
To plan for what’s ahead, it helps to know where we are coming from. Coming out of the tumultuous past couple of years, the industry is seeing some slight improvements with allocation and lead times. However, decreases in lead times are dependent on commodities.
“Many of the passive components are getting a lot better,” Cunha says. “Some of the semiconductor components are improving. We still have a couple of issues—at a high level—throughout the commodity picture, but overall, we’re down over last year. I think most manufacturers as well as suppliers are feeling that 2023 is ending not as well as everybody wanted it to, but coming out of the last couple years, I think that’s not too bad.”
The pressure is on to finish the year strong, Cunha continues, saying that certain industries such as government and medical are certainly trending up. With the focus on closing 2023, the question remains: What is 2024 going to bring?
What to Expect in 2024
The global economic unrest of today is a big concern, Cunha cautions. With the ongoing conflicts of Ukraine and Russia, as well as Israel and Palestine, along with the concerns between China and Taiwan, on top of a U.S. election cycle, there are many intangibles that will need to be accounted for by global businesses.
“There’s a lot of uncertainty,” Cunha states. “And with uncertainty comes fear. And then fear drives certain decisions. My concern is that we’re still feeling the effects of inflation and are in a slight recession, and that’s going to drive the first half of 2024.”
Cunha is not alone in anticipating a slow start to the new year. Manufacturers are facing a lack of skilled labor in the market and following many mergers and acquisitions from suppliers and manufacturers, more uncertainty arises. Cunha also cautions that there may be more end-of-life component issues coming in the new year, which will certainly impact procurement teams.
“Following the supplier mergers and acquisitions, people are going to look at their redundancy components and there’s going to be more end-of-life and lifetime buy—and that impacts the supply chain. It really impacts procurement and we’ve seen waves of it in the past,” Cunha says. “The lifecycle of our technology is becoming shorter and shorter as time goes on, and that just makes it even more complex.
“It’s not going to be easy, that’s for sure,” Cunha continues. “While there are a lot of challenges and churn, I think everyone is just trying to understand where the market is going to go, based on industry, and then understand how it will impact overall procurement practices as we head into 2024. Because there’s a lot of change still coming, unfortunately.”
What should procurement teams anticipate in the coming year? How can they prepare themselves? Cunha suggests taking lessons learned as of late and embracing the challenges to come.
“It’s not just any one area, but to hit the nail on the head, it’s change,” she says. “We should be more easily adaptable to it because we’ve been thrown into such a turnover the last couple of years, but it’s still one of the hardest areas to develop. Change is not easy.”
To assist in the challenges faced through a changing industry landscape, DigiKey implemented an organizational change management team. The team is tasked with helping employees successfully navigate the changes faced—a critical skill needed for tomorrow.
“The biggest concern that I have as we move into 2024: There are so many areas that are going to impact the industry and change is not going to get any lighter. Yet, how we adapt to it and how we let it affect us, impact us and our decisions, is what my biggest concern is,” Cunha acknowledges. “Those who can flex a little bit better are going to do the best. Those that fight it, don’t understand it, don’t want to evolve—those are the folks that I’m most concerned for, because they’re probably going to be left in the dark.”
Whether your organization has a change management team or not, it is helpful to understand the support systems that can be put in place to help guide employees through turmoil. Cunha suggests focusing on individuals’ comfort.
“Make sure the team understands the new direction, the new vision, and how they are part of the execution plan,” she says. “Touch base to make sure that they are comfortable along the path. You need to make folks comfortable with being uncomfortable.”
Prepare for the New Year
To prepare for the year ahead, a “back to basics” game plan may be wise, Cunha advises. Those that can master the basics can adapt, plan for contingencies and realize resiliency.
Step One: BOM Cleanliness
There is going to be much outside of your control. However, the more that you can work with the engineering team and the more you can truly master your bill of materials to make sure there is a level of order and cleanliness to it, the better.
“Do you have alternates for any of your commodity materials so that if you cannot get Part A, you can find Part B or C? Do you understand where your material is in its lifecycle?” Cunha poses. “If you have components that are nearing the end of their lifecycle but you’re going to have to build this product for the next 10 years, then that is a component you should look at. Focus some time on what that supply chain should look like. Is there something better that you could have an engineer review so that before the BOM is even released, you have a newer lifecycle component in its place? Or, if there is no technical alternate and you do need that component and it is at the end of its lifecycle, what can you do with the supplier and the raw material manufacturer to either establish an agreement or some sort of long-term life expectancy to make sure that your supply chain is resilient, and you have support long-term?”
With all the change forthcoming from external forces, the bill of materials is one area you can truly make a difference in.
“Look internally. Work with your engineering staff. Make sure that your bill of materials and the components that you’re going to be procuring are as stable as you possibly can make it,” Cunha says. “Because nothing is ever going to remain stable, but you want supply chain resiliency.
“The definition of supply chain resiliency is the capacity to withstand or recover quickly, ” she continues. “That’s what most supply chain professionals are aiming to do. They want to make sure that if there are outside forces that impact them and affect their daily tasks, they can quickly pivot and find a solution someplace else. That should be an area of focus: BOM cleanliness to gain your supply chain resiliency.”
Step Two: Digitalize Processes
Digitalization creates process efficiencies. Take the bill of materials for example. DigiKey offers solutions for the procurement professional with myLists, which quickly provides product availability, pricing and offers alternate lifecycle information for components so that users can do a quick BOM scrub if needed. Furthermore, when using myLists and there is a product that is not available, users can request a notification for when that product does become available, and an email will be sent to notify that the components are open to be purchased.
“Supply chain is already complex enough,” Cunha states. “But if you can align with a digital process and make daily tasks more system-oriented so that the digital system is doing the heavy lifting, then you can deal with the exceptions and supply chain professionals and procurement professionals will do much better in 2024 and beyond.”
Technology cannot do it all—and organizations must align how they operate with the tools they implement in order to realize the efficiency they seek.
“If you’re going to invest in technology, you also want to make sure that your processes are improving with that technology and that you’re not continuing to alter Excel spreadsheets, for example,” Cunha continues. “If you’re going to make the investment in a digital transformation, you also want to make sure that you have the time and labor savings from it and that there’s an advancement in your overall processes.”
Thinking Strategically and Being Proactive
Putting a strategy in place behind good practices is a recipe for success. And if the basics are mastered and there is some digitalization in place, organizations will be ready to move quickly.
Not only are component lifecycles getting shorter, Cunha relays, but everything moves faster today—and that will certainly be the case in 2024. As decisions are made faster and data is more readily available, an emphasis on data cleanliness and access should be atop an organization’s checklist. “You want to make sure that the data that you have is as accurate as possible so that you can make the best decisions moving forward,” Cunha reinforces.
Another area to be proactive in is having a firm grasp on the country of origin for all of one’s parts.
“China tariffs continue to be an issue and concern for customers, especially as it relates to the current global climate,” Cunha says, “but the more you can understand where your parts are coming from—your country of origin—the better prepared you will be to deal with challenges. And that is something that DigiKey can help with. It is data that we provide with each of our components.”
Continue to think digitally as a proactive measure for success; upgrade ERP systems and align with third-party software providers, Cunha recommends.
“Software and digital are the trends that are not going away,” she states. “Machine learning and AI is where the focus is going for procurement. The challenge is trying to understand how to best utilize it, how to implement it, and then, more importantly, how to make sure that once you invest in the technology, your internal processes change so that you’re not investing, as an example, in a high-end car but you continue to walk to work.”
Leverage valuable tools available as another proactive measure. The DigiKey website offers many data-focused tools to help: Conversion calculators, cross reference capabilities, tech forums, reference design libraries, data sheets, parametric information for components and more.
Further aligned with the digitally oriented mindset is the integration of APIs.
“DigiKey offers APIs for availability and pricing, but also quoting. Ordering APIs allow you to order system-to-system,” Cunha says. “We have supply chain APIs so that if there is a supply chain reservation program, that data is readily available and can be incorporated into your internal ERP. For ease, these APIs link directly to myLists, because we understand for the procurement professionals that it all starts with that cleanliness of the bill of materials. Having the opportunity to upload a bill of materials and then get all that data quickly and in an easily readable CSV file is key.”
No one knows what the future holds, but if the last few years have taught us anything it is that it pays to expect the unexpected.
“I don’t think we’re done with change,” Cunha closes. “The chaos is alive and well. And I think next year is going to be another roller coaster. Trying to get ahead of it as much as we can is the goal.”