How World Events Can Disrupt Your Procurement Process

Estimated reading time: 5 minutes, 40 seconds

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Published August 29, 2024

A vigorous and efficient procurement process is critical to strengthening competitiveness and meeting deadlines in the electronics industry. The industry's success relies on seamlessly acquiring components, materials, and finished products. However, global supply chains are interconnected and vulnerable to disruptions.

From economic crises and political instability to natural disasters and technological shifts, any event around the globe can have far-reaching effects on your procurement process at home. A global recession could lead to elevated prices and shortages of raw materials. Political events could result in trade wars and tariffs, impacting supply routes. Natural disasters can disrupt manufacturing hubs, and, as we've seen firsthand, pandemics can cause labor shortages and factory shutdowns. Other disruptions include cyber threats and environmental regulations.

Understanding how these potential disturbances arise and how they impact your procedures is essential for anyone who wants to navigate them effectively and ensure a steady flow of components. By getting ahead of these potential roadblocks, you can develop strategies to keep your procurement practices flexible and equipped to manage risks and sustain operations in the face of uncertainty.

Let’s explore the most common world events that could disrupt your procurement processes.

Economic Crises

Economic crises like global recessions hit electronics procurement hard. For example, during the 2008 financial crisis, the industry experienced a sharp decline in consumer demand, causing suppliers to reduce production or even shut down. This resulted in volatile prices and shortages in the raw materials necessary for electronic component production.

Currency fluctuations also impact procurement costs. A weaker domestic currency can increase the cost of importing components, affecting budgets and profit margins. Electronic procurement professionals should watch global economic indicators and ensure multiple supplier relationships are in place to reduce the risk of shortages and price spikes. A currency hedging strategy and review of currency trends can also help manage and predict cost changes.

Political Instability

Politics plays a significant role in your procurement processes. For example, in 2018, tensions between the US and China escalated. The imposed tariffs on various electronic components led to higher costs for manufacturers and disrupted supply chains. Companies re-evaluated supply routes and found alternative suppliers, but often at higher costs. Political events can result in sanctions that restrict access to critical components from specific regions, such as rare earth elements that are essential for electronic products.

To navigate these challenges, procurement professionals should stay updated with international trade policies and geopolitical developments. Contingency plans, such as friendshoring, with alternate supply routes and multiple suppliers are essential. Due diligence will ensure your suppliers comply with international sanctions and prevent disruption.

Natural Disasters

Natural disasters can damage manufacturing hubs and transportation infrastructure. In 2011, an earthquake and tsunami in Japan impacted electronic component production and caused delays and shortages. Hurricanes and floods can also disrupt supply routes and push manufacturing in areas affected.

Procurement professionals should evaluate the location of their suppliers and ensure backup plans are in place. For example, they should identify alternative sources in less disaster-prone areas.

Industrial Accidents and Facility Fires

Industrial accidents and facility fires can cause significant disruptions in the electronics supply chain. For example, a few years ago, a power surge sparked a fire at an electronics factory, damaging machines and severely impacting the global supply of computer chips. It took more than 100 days for the factory to return to full production capacity, during which the company had to outsource production to vendors in other regions.

To manage the risks associated with industrial accidents and facility fires, procurement professionals should evaluate the safety practices of their suppliers and ensure they have comprehensive disaster recovery plans in place. Establishing relationships with multiple suppliers and having backup suppliers in different regions can help mitigate the impact of such disruptions. Additionally, encouraging suppliers to implement rigorous safety protocols and conduct regular maintenance checks can reduce the likelihood of accidents. Procurement teams can proactively address these risks and ensure a more resilient and stable supply chain.

Extreme Weather-Related Disruptions

Weather-related disruptions, such as droughts and unusually freezing temperatures, can impact manufacturing supply chains and shipping capabilities, as we saw in Taiwan and the United States in 2021. Taiwan is a significant player in the global semiconductor industry, and in 2021, it faced its worst drought in 56 years. When the water availability at the Baoshan No. 2 Reservoir, a primary water source for semiconductor production, reached just 7 percent, it hindered the industry, affecting global manufacturing.

In February 2021, the United States experienced a severe winter storm that covered 73 percent of the country in snow. This polar vortex hit Texas quite hard and resulted in power outages and equipment damage. This event forced many facilities to shut down for almost a month. Because the state is a major hub for a variety of industries, such as oil and gas, electronics, and aerospace, the weather disruption caused a drop of more than 2 percent in US industrial production and a 3.1 percent drop in manufacturing output that February.

As with hurricanes and tsunamis, it's necessary to evaluate the geographic and climatic risks associated with your suppliers and develop alternate plans. Of course, some incidents can seem unexpected (like a big freeze in Texas), but planning for the unknown or seemingly impossible is still helpful.

Cyber Threats

Cyberattacks are a threat to any industry, but when they affect the supply chain, they can compromise information, halt production, and cause financial loss. Procurement professionals can require that their suppliers follow strict data protection standards such as advanced protocols, regular security audits, and compliance with industry regulations.

Environmental Regulations and Sustainability Initiatives

Environmental regulations and sustainability initiatives are influencing the electronics industry. Today, more emphasis is placed on environmental laws like the European Union's Restriction of Hazardous Substances (RoHS) Directive, which affects manufacturing processes and costs by requiring compliance with strict environmental standards. Consumers and stakeholders are also pressuring manufacturers to source eco-friendly materials and adopt sustainable practices.

Procurement professionals must ensure compliance with environmental regulations by conducting regular audits and working closely with suppliers. Establishing clear sustainability criteria and collaborating with suppliers committed to environmentally friendly practices can also help meet sustainability demands. By incorporating sustainability into the procurement process, companies can comply with regulations, enhance their reputation, and appeal to environmentally conscious consumers.

Conclusion

Economic crises, political instability, natural disasters, industrial accidents, extreme weather, and environmental regulations can affect your supply chain—regardless of where they occur. While we can’t necessarily prevent these events from happening, we can stay ahead of the curve so we’re prepared when they do. This includes maintaining many supplier relationships, putting strict safety protocols in place, ensuring compliance with regulations, and developing strategies to mitigate the unknown. Adopting proactive measures will help stabilize the supply chain.