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Dynamic supply chain management is the new normal

Colley Hwang, DIGITIMES, Taipei 0

Credit: DIGITIMES

According to the top management of a cetain components distributor, 2022 will definitely be the year of dynamic management, which will not only be a short-term strategy, but may even become the new normal. First of all, we have to understand that a decentralized production mechanism is taking shape. In the future, the production bases in China will not be the only ones producing handsets, notebooks and servers; Vietnam, Thailand, Malaysia, India and Indonesia will also be the focus of everyone's attention. Therefore who will be responsible for managing components inventory and logistics?

With the current global semiconductor market size of US$555.9 billion (SIA survey), about 35% of the total amount comes from components distributors; that is, nearly US$200 billion is shipped to assembly plants through components distributors, and the role of components distributors is becoming more and more important to meet diversified needs. Among these companies, the revenue of WPG was US$28.2 billion in 2021; WT Microelectronics' revenue came to US$16.1 billion; and Avnet, which is very active in Asia, also had revenue of about US$10 billion.

Under normal circumstances, channel operators have to prepare 20-25% of their annual revenue as working capital, highlighting the fact that components distributors with strong financial prowess play a very critical role in Asia's supply chain. The US wants to regain control of the supply chain, but it is clear that the role and importance of the components distribution industry is underestimated by the original manufacturers and stock market investors.

Generally speaking, components distributors have three major functions. The first is to modularize different components and provide technical support, so a real large-scale components distributor also has a very large technical support team.

The second is fund dispatching. Usually, components dealers will judge the clients' accounts based on past experiences, and because Taiwan has the advantage of capital cost, it is not easy for dealers in emerging countries to replace them. Therefore, in the process of the rise of local industries in the emerging markets of ASEAN and South Asia, Taiwan-based components distributors or large multinational distributors that can make good use of the advantages of Taiwan's industrial ecosystem will have certain advantages.

The third is the value of storage and transportation. In the past, channel operators have taken Hong Kong as the main storage and transportation center, but in the past two years, Taiwan-based channel operators have increased the proportion for Taiwan and invested more in Taiwan's transportation center, coupled with the situation that customers of sensitive models such as servers require shipments from Taiwan, we can understand that this wave of uneven shortages from the long and short supply chains, coupled with the new peak of the post-epidemic period, has given channel operators a good business opportunity.

In the wave of Taiwanese businessmen returning to Taiwan for investment, projects amounting to a total of about US$60 billion have been approved by the Industrial Development Bureau of the Ministry of Economic Affairs, and among them smart factories and smart warehousing are some of the key investment targets. But this is only part of the demand. The efficiency of sea and air transportation in Hong Kong and Singapore, and the advantage of Hong Kong's transhipments into China by land transportation, are also conditions that Taiwan does not have.

Taiwan's components suppliers need "dynamic inventory" management. These new environments and situations may become the new normal. If you are a components vendor or an assembly plant operator, how many operation mechanisms will you have for logistics?

Components distributors should not feel frustrated. This is the nature of their business: constant innovations. the past relied on technological innovation. But the new era is one requiring innovative business models, and no one will stay big forever.

Colley Hwang, president of DIGITIMES Asia, is a tech industry analyst with more than three decades of experience under his belt. He has written several books about the trends and developments of the tech industry, including Asian Edge: On the Frontline of the ICT World published in 2019, and Disconnected ICT Supply Chain: New Power Plays Unfolding published in 2020.
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