Supply and your demands

TECHNOLOGY

Product supply and demand

The pandemic has put supply chains under enormous pressure, with component shortages and price rises affecting all industries. Here we speak to David Hicks, Technical Director for Security and Intrusion systems at Eaton about how alternative sourcing strategies and a new approach to value engineering has mitigated the impact of these global factors

The twin spectres of component shortages and rising cost of freight continue to haunt international markets. Across the world, post lockdown recoveries have led to soaring demand for raw materials and commodities, resulting in a lack of capacity for certain products such as semiconductor chips. Meanwhile, transport and logistics bottlenecks have caused chaos in global supply chains, causing unprecedented lead times on some items. These factors have sent prices soaring across the board, with the issues affecting a broad range of vertical markets from automotive to electronics through to household goods.

The safety and security industry isn’t immune to the buffeting of these ill winds. Products such as intruder alarm panels, communication equipment and sensors are complex pieces of equipment that contain many of the types of material and, specifically, electronic components which are currently in short supply. Subsequently, some security system suppliers have large supply gaps in their product lines, while others have been unable to trade and have fallen by the wayside. In short, it has been a testing time for the safety and security sector – and the problems aren’t over yet.

Sourcing alternative parts

So, what are organisations doing to limit the impact of these global supply problems – both internally and for end customers? According to David Hicks the answer to this question comes with a multi-faceted response that requires an integrated team effort across planning, procurement, and engineering departments. It also requires improved communication with customers, giving them as much forewarning as possible of any potential product shortages that are likely to occur.

“One of the primary challenges of current global supply problems has been the sudden unavailability of critical components that form part of a broader system,” says David. “For example, recently, one of our long-standing radio parts suppliers based in Taiwan announced that it could not fulfil its supplier commitments and couldn’t offer an alternative component. The severity of the problem required an instant response, with procurement and engineering teams working closely together to identify a potential replacement.”

But that is just the start of the story. To replace one component with another requires extensive validation, verification, and “One of the primary challenges of current global supply problems has been the sudden unavailability of critical components that form part of a broader system”

TECHNOLOGY

“There is no escaping the fact that we operate in a highly volatile environment at present, and customers will likely see more frequent price adjustments than they have been used to in the past”

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manufacturing quality assessment to ensure no detrimental impact on the performance of the end-product. And this process needed to be carried out quickly and efficiently to dovetail with hastily arranged transport and logistics to ensure that the new radio part could be successfully integrated without delay.

“Qualifying multiple sources and using alternative materials is a constant evaluation process in the current climate, aimed at reducing the impact of supply issues and rising material costs,” explains David. “Through a combination of local R&D and dedicated Value Analysis and Value Engineering (VAVE) resources, we are seeking to find new costreducing measures without reducing the value or quality of products. However, considering the global inflation in the material and component supply chains, these activities are, in reality, often aimed at cost-avoidance rather than costsaving. First, the products suffering from the inflationary pressures or availability challenges are identified, and then possible solutions are explored through alternative component selection or material reduction, with local design support where required. Most recently, this process has looked at replacing semiconductors and plastics, with the latter also opening opportunities for improving sustainability.”

Customer collaboration

Another crucial response to supply challenges has been the forming a dedicated taskforce responsible for mitigating all risks related to material availability and logistic constraints. Comprising planning, procurement, logistics and financial markets specialists who take a broad view of global factors, the team works closely with customers, for example, on long-term horizon forecasting, which is helping Eaton with material and production planning: “A long-term forecast is critically important as the commodity industry is at allocation (dividing the produced volumes between customers) while it sells more than it can make. This means we can only source materials based on the forecasting of our needs,” says David.

“Any volumes above the forecast often need to be procured on the spot market but taking this approach can be around 30 percent more expensive for raw materials such as steel and copper, and up to 300 percent more expensive for some specific in-demand electronic components. So, we continue to work closely with customers to gain accurate visibility of future demand.”

Other collaborative efforts also come into play such as implementing additional logistic solutions, like road and rail. Both shipping and air freight have limited capacity at present, as transport networks struggle to operate normally again in the wake of the pandemic. Rail freight can offer significant advantages in terms of speed of delivery across long distances.

“We are also working to find and qualify new suppliers, while respecting quality standards,” reveals David. “After a commercial assessment, a supplier is requested to submit a “Supplier Self-Assessment” (SSA). Based on feedback on several criteria, if applicable, improvement activities are agreed upon with a supplier to reach minimum performance levels. After successfully closing the SSA process, test materials are ordered via the Production Parts Approval Process (PPAP). Once the PPAP has been completed, the new supplier is officially brought on board – opening new avenues for the supply of parts affected by shortages.”

Global supply problems

“Combining all these efforts has had a positive effect, mitigating much of the impact of supply problems on the end-user base. However, there is no escaping the fact that we operate in a highly volatile environment at present, and customers will likely see more frequent price adjustments than they have been used to in the past. Making any form of long-term price commitment is likely to be very difficult in the current climate, and we believe it is important to be honest with the market in the face of these ongoing global challenges,” concludes David Hicks.

Supply challenges and inflationary pressures could be with us for some time yet, but installers and their customers can rest assured that every effort is being made to reduce the impact on the market.

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