March 2020 brought some scary figures to the electronics industry because of the coronavirus outbreak. Reports from S&P Global Market Intelligence outline a 64% drop in the number of shipments coming from China during the first two weeks of the month.
Some of the steepest drops came from TVs and monitors, losing over two-thirds of the shipments from the same time last year. That’s against a significant 45% drop in all exports that come from China. Investors are even worried that this drop-off in production could delay the next iPhone model release.
Electronics companies experience gridlock when China closes its factories. Even though the most severe lockdowns happened in Hubei Province, the change in manufacturing procedures impacted the entire country. Almost every manufacturer was at reduced capacity for most of February and March. That’s the reason why the supply chain is experiencing such severe disruptions.
Why Is the Market Experience Such Severe Shortages?
Although the COVID-19 pandemic is a public health crisis that the world hasn’t seen since the outbreak of influenza in the early 20th century, there are industry habits, policies, and procedures that contributed to the current state of affairs.
The structure of modern manufacturing encourages hardware companies to reduce costs by keeping stockpiles of items as low as possible. Minimizing the amount of time that products spend on shelves supports a higher profit margin. That process works well in “regular” times, but it also means that the system gets disrupted whenever something unusual happens.
If a component cannot be built because workers are unavailable to make it, then there is no way to make a profit. Since manufacturing is also on-demand as much as possible, nothing remains for the company to sell.
Even if the manufacturing facilities aren’t locked down because of coronavirus restrictions, changes to the import-export market can restrict shipping capabilities.
What Can We Do to Change the Future?
The lessons learned from the COVID-19 outbreak are that we should approach our manufacturing supply chains in the same way families are encouraged to save for an emergency. Having a stockpile of products that can last for up to six months can help the world’s economy continue to function even if factories are not allowed to operate.
Does that mean businesses are going to experience a loss of profits by building up stockpiles once again? Probably. Governments can help by offering a stimulus package that supports this activity. Workers will have wages that get put back into the economy, encouraging growth that can support the overall recovery.
An ongoing financial collapse does mean that some industries may get changed forever. If people are struggling to pay their bills, then their spending priority focuses on basic essentials like food and shelter instead of a new computer.
The short-term consequences of the current manufacturing process are that all companies are going to experience challenges trying to get products to stores. If you need repair parts for your electronics, then you might be out of luck. Time will correct this issue eventually, but it could be a long wait for some consumers.