The OEM Perspective on the COVID-19 Crisis
The COVID-19 crisis seems to have come out of nowhere and disrupted everything. It has been a perfect storm of shortages, panic, and lack of consensus in the scientific community about how to treat and control the spread of the disease itself. This global human health crisis has led to a sudden halt of activity in huge swaths of everyday life. It’s like the global economy has run into a brick wall.
Experts in the electronics industry are combing through the rubble and trying to assess the damage. Gartner and IC Insights have revised their forecasts for semiconductors. IDC tracks various industry segments, and each report reveals worse data than the last. Ron Keith’s excellent LinkedIn reports list industry after industry shutting down factories in the U.S. and elsewhere.
The industry is scrambling to respond to a completely different demand landscape. While factories in China may be starting to run at capacity, their own demand is drying up as the rest of the world shuts down. Cracks in the global electronic industry supply chain that had been appearing during the tariff wars of the past few years have become even deeper and may cause permanent damage.
Governments are insisting their citizens shelter in place through April and beyond to buy their overwhelmed healthcare systems time to prepare. Convention centers and hotels are being converted to makeshift hospitals in urban area hotspots around the globe. To equip them, there is an urgent need for medical equipment and PPE. Certain industries in the U.S. have been deemed ‘essential businesses’ to enable ramp up of production for critical equipment. The industry needs to quickly adapt to this rapidly changing situation, even as they protect their own workers from contagion.
Robin Gray of the ECIA has followed the implications of the U.S. Federal Government’s Cybersecurity and Infrastructure Security Agency (CISA) guidelines used by U.S. state governors when determining which industries should be required to continue operations during shelter in place mandates. ECIA has recommended that CISA include the electronic components industry, both manufacturers and their distributors, in the Essential Business designation, since medical equipment manufacturers need a supply chain to produce ventilators. SEMI has made a similar recommendation for semiconductors.
Whether these measures will ensure that OEMs and their EMS providers can build the mind-boggling number of ventilators and other medical devices required to treat those COVID-19 patients that need respiratory support remains to be seen.
EMSNOW OEM Perspective
EMSNOW asked our OEM panelists about their experiences since the end of January with the COVID-19 outbreak. Here are two responses.
What impact has the COVID-19 had on your outsourced electronics manufacturing operations, and how do you judge your EMS partner(s) response to it thus far?
*Our current project has one element coming from China but I am also tied into other China projects through my previous projects and work associates.
Following the Chinese New Year two week break I was faced with an additional two weeks before people returned to my EMS located near Shanghai. The first week was maybe 30% coverage, then 50%, now 80% based on verbal reporting. No contractors are allowed onsite without a 14 day isolation. Engineering was unable to visit during builds impacting test development (this is an NPI project).
Another impact has been logistics; logistics providers are only accepting high priority shipments so the low cost shipments that were in process sat until we upgraded them to higher cost, high priority shipments.
How has it impacted me? I receive global emails on the status from the EMS on the steps they are taking. Locally information is less available on site-specific status. Overall the impact has been schedule delays – shipment delays, product manufacturing delays.
*It is surely early, and any input is kind of speculative at this point.
However, the Coronavirus came along the same timing as the Chinese New Year. The majority of OEMs plan around this known 2-4 week “shut down” period with inventory positioning.
The planning for the Chinese New Year may have delayed the immediate supply constraints that are expected. Again, due to inventory.
Our EMS and third party partners are certainly “on top” of the situation and addressing those items they can control, aggressively.
However, when the impact is considered from a Global perspective, there is not much to be done when entire regions/countries/companies are closing operations in order to mitigate the health impact and improve the overall situation.
It will clearly get worse before getting better.
Why Not Call the EMS Industry, Mr. President?
Jabil and Flex have issued statements emphasizing their experience and capabilities in medical device manufacturing. Medtronic announced it will share its ventilation design so other companies can manufacturer it. Many EMS industry insiders were flummoxed when General Motors and Ford were collared to build ventilators. “Personally, I think the US administration would get better results approaching Jabil and Flex, two companies that make tens of thousands of highly complex tech products including medical devices,” commented Ron Keith. “I’m sure these highly capable CMs build things a lot closer to positive pressure ventilators than pickup trucks. Plus, I’m certain GM doesn’t have a single plant in the world that is ISO-13485 registered.”
The industry is facing its greatest challenge since the great recession. It is unlikely that any sector will come through unchanged. McKinsey analysts put it this way: “It is increasingly clear our era will be defined by a fundamental schism: the period before COVID-19 and the new normal that will emerge in the post-viral era: the ‘next normal.’ In this unprecedented new reality, we will witness a dramatic restructuring of the economic and social order in which business and society have traditionally operated.”
Until the health care crisis is resolved, and the human cost is assessed, what that post COVID-19 world will look like is full of unknown unknowns. When the dust settles, the industry must focus on building far more resilience into the supply chain so future crises can be weathered more effectively.