How to Solve High-Tech Supply Chain Challenges

New and innovative technologies, software updates and the latest gadgets often make headlines in the quickly evolving high-tech industry.

What is less talked about, and yet equally vital in the technological ecosystem, is the high-tech supply chain.

This is an intricate web of suppliers, manufacturers, distributors and retailers who collaborate to deliver cutting-edge products to consumers.

Considering that most of the leading high-tech companies today rely on external partners to design and manufacture their products, they are exposed to several risks in their supply chain.

Just like the automotive industry, these external partners are often located in far-off regions on a different continent. Supply shortage of one component can affect the entire manufacturing pipeline and leave companies unable to fulfil demand.

Despite several disruptions in recent times, many high-tech companies do not have a robust system in place to identify (and mitigate) supply chain risks. Worse still, they do not have a clear plan for addressing these problems in the future.

Lack of transparency is the underlying issue in the supply chain. Despite operating in the technology space, companies often have little visibility into where raw materials and critical components are sitting.

Instead, they rely on data generated by disparate systems across the network.

Risks and Challenges of High-Tech Companies

Here are the top 5 pain points of the high-tech supply chain:

• Short product life cycles:

In an industry where product life cycles have shrunk from years to months and even weeks, a popular product or technology may become obsolete soon. With growing consumer demand, there is immense pressure on companies to introduce new, user-friendly products equipped with the latest features. If they do not launch a new product, they will lose out to competition. The need to innovate and gain a first mover advantage creates challenges for supply chain managers to pivot quickly.

• Constant cost pressure:

In the high-tech industry, companies not only need to be innovative, but they also need to ensure that products are priced competitively. Growing competition has put relentless pressure on companies to reduce costs. For example, while two different products may offer similar configuration and features, they may be priced differently. In such cases, consumers are most likely to choose the lower priced product.

• Compliance challenges:

Another challenge for high-tech companies is the need to comply with changing rules and regulations. As businesses expand, the scope of regulations also increases and becomes more stringent. For example, high-tech companies must have a mechanism to deal with e-waste. They must know and comply with the regulation to dispose of e-waste, which may differ in different regions. Additionally, companies need to comply at all levels, right from sourcing and procurement to product delivery.

• Shortages of critical components:

In recent years, supply chain disruptions and delays in supply of critical components have affected production in high-tech companies. Lead times have increased significantly, stretching more than 40 weeks for some components. Many companies have struggled to get a regular supply of semiconductor chips, which are required in multiple industries. Such disruptions have exposed the vulnerability of high-tech supply chains. Ongoing geopolitical conflicts such as the Russia-Ukraine war have put further pressure on high-tech supply chains.

• Growing competition:

Experienced market players often lose out to new entrants in a highly dynamic high-tech market. This is because too many players have entered the market with innovative products and state-of-the-art features. Not only do these new players capture market share by offering new technologies, but they also bring in supplier partnerships at lesser costs, challenging the position of leading market players.

Building a Resilient High-Tech Supply Chain

Given the dependence on external partners, there is an immediate need for high-tech companies to address supply chain risks.

Additionally, there is a clear business case for building an agile and resilient supply chain . With the rapidly increasing demand for consumer and business electronics, especially after prolonged lockdowns and remote working models, high-tech companies are well-aware of the revenue growth opportunities.

To address supply chain risks, high-tech companies have to reduce their dependence on a few suppliers and diversify their supply base. While sourcing critical components locally may not be immediately feasible, companies must take steps to lower their dependence on a single country or region.

For example, a key agenda of the U.S. looking to strengthen its bilateral ties with Vietnam in recent years is the diversification of its high-tech supply chain.

In an effort to restructure the global supply chain and move away from China, the U.S. plans to turn Vietnam into a major high-tech and semiconductor hub. The latter, in turn, will benefit from the technology know-how and acquisition and capital investments.

High-tech companies must take similar initiatives and focus on suppliers located in different geographies. If they do not act now, they increase their risk exposure and are likely to struggle in a highly competitive industry.

Finally, companies need to invest in advanced technology to gain real-time and end-to-end visibility of their supply chains. Accurate, real-time information regarding supply chains and suppliers can help them spot potential issues and make timely and well-informed decisions.

In addition to visibility, technology can provide the data and insights needed to improve supply chain operations and enhance operational efficiency. It can also help to accurately forecast demand and adjust supply accordingly.