Tariffs in the Electronics Manufacturing Industry: What Is the Upside?
There are few things capable of driving production quite like deadlines. It is easy to maintain the status quo when the idea of waiting until tomorrow is a somewhat justifiable alternative, but remove the certainty of tomorrow from the equation, it is much easier to wake up long-dormant motivations.
In a way, the news of the U.S.’ ongoing trade dispute with China, while being arguably the most significant supply chain disruption facing the electronics manufacturing industry in 2019, can be seen as a once-in-a-generation opportunity to make some long-needed adjustments that are more in line with today’s marketplace.
As it stands today, there are currently 25 percent tariffs, up from 10 percent, on approximately $250 billion of Chinese goods. Going further, the administration has also stated that they are considering additional tariffs for the remaining Chinese imports in the coming months, which are valued at approximately $300 million.
There is no dispute that these actions have caused additional strain on U.S.-based OEMs who are still recovering from the 2018 electronic component shortage that saw escalating demand stretching lead times for typically commoditized components beyond 52 weeks. Some OEMs have already announced outsourcing partnerships with alternative countries such as Japan, while others have already tasked their teams to embark on costly product redesigns. In certain cases where neither option is realistic, manufactures are also looking at passing on a portion of those costs onto their customers, which could have significant repercussions on the greater economy.
George Whitter, COO of The Morey Corp., speaking to EPS News, spoke on these issues as it related to his company. ““Because we already have contracts with customers, they won’t be harmed [by the increase],” he said. “But I think they — or we — are going to spend a lot more time redesigning things. The major impact will be in PCBs, which is one of the biggest costs we have. More than 50 percent of PCBs are manufactured in China.”
Despite these realities, however, with every challenge comes a silver lining. In this case, by implementing more agile, innovative supply chain strategies, the companies that are struggling in the short term will be better positioned for long-term productivity and growth. “With news around the latest round of tariffs that will be assessed on almost everything, I look at this as a huge opportunity,” said Whittier. “Many of our competitors buy or build in China. If we do a redesign that can improve our cost position, I see that as a competitive advantage.”
In many aspects, strategies such as the Partstat Last Time Buy Solution are exactly what is needed to improve financial standing when redesigns or immediate outsourcing are not currently feasible. By allowing Partstat to purchase 20 years or more of critical electronic inventory upfront in the production process, OEMs can take advantage of today’s pricing before additional tariffs are implemented.
Even OEMs who lack the infrastructure to properly secure multiples years’ worth of inventory on site will be able to take advantage of the Last Time Buy Solution; instead of passing that burden onto our customers, Partstat will store the entirety of the inventory in our own climate-controlled facilities under the care of a trained supply chain staff, who will also pack and fulfill the inventory as needed on a personalized delivery schedule.
The existence of strategies such as this one brings some much needed optimism to the electronics manufacturing industry. Short-term strains do not take away from the fact that the industry as a whole, with the aid of specialized supply chain partners, is well-equipped for a future that many economists still point to as particularly bright. Change is still change, whether it is forced on the organization or self-realized, and in this case it appears to be a change that will undoubtedly be for the better.