There’s opportunity in hard times
The electronic component and chip shortage has been well reported in the media. However, what’s not often mentioned is that this shortage predates the COVID-19 lockdown, reaching back as far as 2018, when manufacturers first started experiencing difficulty accessing all of the technology components and parts they required.
Mark Broude, Head of Kemtek’s Commercial Division, says: “Electronic component shortages have been a hindrance on a booming electronics marketplace since 2018, and – while new orders roll in – there hasn’t been enough available parts to meet them. The advent of COVID-19 just means that the chip set shortage hasn’t had a chance to recover.”
The coronavirus spreading around the world and entering various countries, especially those that produce components and chip sets, has only exacerbated the situation as ensuing global lockdowns and mandatory factory shutdowns resulted in longer manufacturing lead times.
Adding to this, the next challenge is a supply chain with insufficient capacity to move products to countries that need them for manufacturing. A reduction in the number of international flights placed increasing pressure on sea freight, resulting in a shortage of available containers. All of this placed additional pressure on deliveries of a supply that was already cut short. With continued COVID-19 related restrictions, 2021 is shaping up to be another challenging year. Making matters worse, the aforementioned freight shortages have led to a rise in delivery costs.
The world remains under real pressure to improve components and chip sets supply so that manufacturing can get back to full capacity.
“However, we recently received notification from our leading principals saying that the global shortage of commonly used technology components will take some months to recover, as well as highlighting the likelihood of future price increases.”
Broude says most manufacturers are racing to understand what is ahead for their already-constrained supply chain. “While suppliers may have managed to absorb some of the price increases, upward price adjustments are probably unavoidable going forward.”
He explains: “When manufacturers came out of the initial hard lockdown and were able to resume production, they weren’t only fighting a lockdown-inspired shortage that was placing pressure on almost all electronic items and industries that rely on those components, but they were also trying to recover a backlog dating back quite a number of years, in addition to lost production time.
“While it’s been a difficult time on the whole, COVID can’t be blamed entirely. Once business and life started returning to some semblance of normality, demand revived and the real impact of the longer-term component and chip set shortages became apparent, with manufacturers under pressure to make it up.”
Broude highlights an interesting dynamic that’s he noticed, particularly in industries that Kemtek operates in. “When it comes to laptops, desktops and mobile terminals, people accepted that limited stock was available, which enabled some businesses to sell slow-moving stock as demand outstripped supply.
“We’ve been fortunate in that we have technology that’s primarily deployed in the retail and FMCG industries, which needed to operate throughout lockdown so that people could access groceries.
"Businesses have had to be agile in order to service customers in a new way. This has meant expanding their ability to do deliveries and deploy systems that enable them to use their current infrastructure to maximum effect. Retailers, pharmacies and many businesses have set up their own delivery systems. You can get almost anything delivered to your house nowadays. This has created demand for different types of technology so retailers can track orders and use mobile points of sale.”
Online offerings have gone from strength to strength. Spar has rolled out online platforms worldwide; Amazon and Takealot have grown stronger. Even though they’ve been hampered by lockdown, fast food chains have changed their business models to enable deliveries of call-in and online orders, adapting their technology to survive.
While this has led to massive opportunities and increased demand in the technology market, it has also put even more pressure on a sector that was already stressed from shortages of chips and components.
“Industry experts agree that this problem isn’t going away in the next 12-18 months. Manufacturers now say they’re looking at a four-month lead time to get components and manufacture. Also, this is going to drive up inflation. Suppliers are coming through with almost weekly increases because they’re having to pay a premium for components. This gets passed on to distributers, who pass it on to resellers who, in turn, pass it on to their customers.”
Customers need to realise that lead times are going to get shorter any time soon. The local market has had a double whammy of COVID combined with the recent unrest, so the impact on the economy has been more severe than in the rest of the world. We’re already struggling to get components into the country, and we’re not only seeing price increases from manufacturers, but also from providers of sea and air freight.
People are starting to pay for the privilege of a full container or even an earlier flight. If you’re prepared to pay top dollar, you can get your product in slightly earlier. This changes the nature of firms that can afford to pay extra to get product to market quickly. Broude believes South Africa is going to see a shake-up of most markets, with people learning how to trade quickly and carefully, but also profitably. “In SA, we’re also affected by a volatile exchange rate and are going to see price increases on top of price increases should the rand not stabilise.”
He also predicts the market is going to see a lot of cheaper products possibly coming out of the East that will be considered by businesses that might not previously have gone that route. “This will create more opportunities for suppliers in the future as replacement cycles shorten, and when the economy improves, businesses will revert to acquiring quality solutions with a longer lifespan, moving back to tried and tested brands. But this is a year or more into the future.”
The South African market is seeing a lot of demand that’s been created by the recent spate of riots, over and above the COVID pandemic. Customers in the retail sector are having to rebuild their businesses and restock so that they can start trading again. “This unique situation might kickstart the economy a bit faster than if we’d waited for it to recover naturally from the global pandemic,” says Broude. “New opportunities are coming to the fore, such as cashless stores – we’ve just seen Shoprite announce their first foray into this technology, while Amazon has been experimenting with it for a while. Businesses will be exploring the deployment of technology to help them operate more effectively.”
He believes the technology sector will experience a boost as businesses look for ways to service their customers more efficiently and at creating a safer environment. Here he’s not just referring to COVID, but also the risk associated with carrying cash and operating as a retailer. “The road forward is paved with opportunity and companies that look at the bigger picture and centre themselves around the use of technology to improve their service levels are those that will come out of this stronger.”