By Eric Miscoll, Publisher EMSNOW
A lot has been written about the increasing number of business disruptions interfering with the executive sleep cycle recently. Managers are told to be resilient and build flexible supply chains to get through the flocks of black swan events that keep appearing.
We thought it would be helpful to add some nuance. Volatility and uncertainty are often used interchangeably, but let’s think more deeply about that. While they both refer to unexpected change, they have different implications for business operations and planning.
Volatility: the known unknowns
Volatility refers to the speed and magnitude of change that often can be measured and managed. It could be thought of as the ‘known unknowns’ in managing a business. These are the industry specific cycles that can be predicted from past experience. For example, the semiconductor bullwhip effect, which has been tracked and studied for decades and has predictable patterns that can be built into a forecast. Yes, unexpected things happen when demand drops off a cliff and then restarts suddenly, as it did during Covid. Automotive manufacturers cancelled their chip orders and then expected to be able to turn them back on again in a few months. Automotive industry supply chain managers learned the hard way that it takes months and sometimes years for new semiconductor capacity to come online. They likely will not make that mistake again.
Other examples of volatility arise from the explosion of new applications for electronics: militaries need weapons, AI means building new data centers; the electrification of everything means more PCBAs in new places. Governments and venture capital start investing heavily in targeted areas, creating sudden demand for drones, servers, batteries, and so forth.
Another example of volatility would be when a new product is introduced, there is no way of knowing how the market will respond, so production quantities are hard to plan. This is an age-old challenge, and companies succeed or fail on the judgment of its managers.
Volatility challenges the organization operationally. How fast can new products be delivered to the end customers? How quickly can the design team pivot from a design with parts that go obsolete? How does the purchasing team manage longer lead times and price changes? Execution in these key functions is how EMS manage a business through volatility.
Uncertainty: the unknown unknowns
Uncertainty on the other hand is a different animal altogether. These are the “unknown unknowns” that appear out of nowhere. This is where managers have to throw the forecasts in the trash bin. Historical data is useless or nonexistent. Geopolitical events, wars, new global trade realities, and unexpected regulatory environments fall into this category.
While the industry has faced these types of conditions before, electronics manufacturers have never been more vulnerable to this level of uncertainty, perhaps because electronics manufacturing has taken center stage in world events. Only a few years ago, we were told to ‘think global, act local’ with China happily becoming the factory for the world. All that has changed and electronics manufacturing is now of strategic national security importance in nearly all countries across the globe. Maybe not Antarctica. But everywhere else.
The most profound example of this type of uncertainty was the COVID epidemic. The disease was an unknown unknown; emergency rooms and morgues were overflowing before the medical experts knew what was happening and each nation struggled to balance the requirements of safety and economic well-being. No one got it right, but the electronics industry rose to the occasion and companies started building respirators and PPE as these needs revealed themselves.
Now we are in a comparable climate of uncertainty with new global trade announcements coming out daily, along with many other factors with substantial impact on the business of electronics manufacturing. Managing uncertainty requires strategic resilience, not just operational flexibility.
How should the EMS industry prepare for 2026?
Managing during uncertainty requires a completely different skillset and decision-making structure compared to simple business volatility. While operational flexibility and fast response time will serve a business well during volatile times, uncertainty demands seasoned leadership exercising wisdom; scenario planning, deep customer relationships and partnerships; good cash reserves or access to capital; and some luck in end-market environments.
We at EMSNOW are always impressed with how well this industry functions in a crisis. Success in today’s challenging economic climate requires both resilience and judgment to manage through both volatility and uncertainty. We know many companies that have already figured that out.
