Nordic Power Converters is coping with the global electronic components shortage, although not without difficulties. Like many businesses worldwide, they are feeling the global supply chain crisis. NPC reveals the actions they have taken to stay ahead of the market
The lighting industry, like many industries worldwide, continues to be impacted by a global electronic components shortage. The COVID-related manufacturing shutdowns in China combined with the shortage of materials, labor and the shipping backlogs are stressing the market. As the demand for electronic components continues to rise, manufacturers across the globe are continuing to feel the pressure. Leaving all industries asking the same question: when is it going to end?
Just-In-Time supply chain method is challenged
Maybe we should start with the question: How did we end up in this situation? According to Nordic Power Converters Supply Chain Director Allan Berg, it was a disaster waiting to happen. “Although COVID is widely accepted as the cause of the current supply chain disasters, COVID is not the main culprit”, says Allan. “It merely exposed an existing challenge in the way supply chains have been designed”. The Just-In-Time (JIT) supply chain method minimizes inventory levels across the entire supply chain and has several obvious advantages.
The model can save businesses storage costs, and tied-up stock capital because they keep only the material they need on hand. In a world with no or little fluctuations, it makes perfect sense that every link in the chain is optimized across the end to end with no buffer acting as a cushion against the shock of fluctuations.But it takes just a minor event say a ship gets stuck in the Suez and it all goes wrong.
An unexpected shift in demand
When the pandemic struck in early 2020, people and businesses were quickly forced to restrict their activities, sending the global economy into a brief but damaging free fall. Stores and factories from Asia to Europe and North America halted production, companies laid off workers. That took spending power and economic life force out of people’s hands. Everybody expected an economic recession. Manufacturers and shipping companies assumed the demand would drop sharply and they reduced capacity. But the pandemic merely shifted the demand. Instead of traveling, eating out, and attending events, consumers all over the world bought kitchen appliances, cars, computers, and other electronics.
Shortage of one thing turned into shortages of others. There was simply not enough raw materials at hand, a lack of production and shipping capacity, a scarcity of workers, and a dearth of computer chips. Automakers like Volvo and Audi shut down production for weeks in several countries last year. Even the mighty Apple was feeling the shortage of chips forcing them to cut production targets for its new flagship smartphone, the iPhone 13. Now the businesses reacted to the shortage by ordering earlier and building up stock placing even more strain on the system. The Just-In-Time model only works when businesses can get what they need when they need it. “Being overreliant on lean production and faraway factories makes your business vulnerable”, says Allan. The pandemic has seemingly validated his point of view.
Although there are no silver bullets to success in the current situation, there are several steps that NPC has taken to stay ahead of the market. “In an electronic component and parts shortage, relationships are key”, says Allan Berg. During shortages, suppliers determine who to support and the importance of supplier relationship management becomes essential. However these strong relationships don’t begin during the shortages, they must be established during a buyer’s market with a mindset of “win/win” that needs to be demonstrated over a prolonged period of time.
That is exactly what Allan and his team have done. “We do not only rely on purchase orders and buying power”, says Allan, “we have always chosen to build a strategic relationship with our partners in the supply chain, both upstream and downstream. It is important to us, that our suppliers understand our business case. We go all the way upstream to the manufacturers and we learn about their operations and their struggles. We keep the lines of communication open at all times, we build trust, credibility, and predictability. I need to understand the struggles of my suppliers so that I can inform our sales team. They need to inform our clients and help them in the best possible way”.
Platform-based design and second sourcing
Another critical step is having multiple sources and having the ability to rapidly select alternative qualified suppliers. “We continuously work on qualifying new suppliers, new components, and having second sources”, says Allan. “And here our quality management system has proven its worth”. But even with strong strategic relationships and second sourcing, there are still some of their key components, that are simply not available in the market. Fortunately, NPC is working with a platform-based design. Each and every one of their products is based on the same platform with a lot of identical components. Consequently, they can pivot quicker than many of their peers. When NPC qualifies a component for one product, they can easily adapt it to other products accordingly. The basic idea behind the platform-based design approach is to avoid designing every product from scratch, thereby providing faster time-to-market through extensive design reuse. Even though they adapt the product to the available components the specifications and functionalities stay the same.
“Agility and flexibility are definitely important in a market with fluctuations”, says Allan. “Our supply chain is agile and flexible, our design method is agile and our entire organization is agile and flexible. We need to make hard decisions quickly. Sometimes we have 48 hours to make a decision whether to buy a certain component. If we do not react in due time, we lose. Strategic partnerships, second sourcing, and efficient quality control system have always been our top priorities”, says Allan, “and I believe it has made us quite resilient to the current situation. Because of the extensive network of second sources we have and the fact that our suppliers will often prioritize us on account of our excellent relationships, we are coping well with the current situation and staying ahead of the market”.