After three years of component shortages, the global manufacturing sector is experiencing a glut. According to new data gathered by GEP, the tide has turned from too little to too much.
The world spent the last four years reeling from the impact of the COVID-19 pandemic on global supply chains. 2021 and 2022 were defined by component shortages and disruption. As a result, 2023 saw a shift in the contemporary procurement ethos from “just-in-time” to “just-in-case”. The COVID-19 pandemic hasn’t been the only thing fueling these pain points. Geopolitical tensions, like anti-Chinese legislation targeting the electric vehicle and smartphone markets, also created shortages and delays. Delays in the Panama and Suez Canals have extended shipping times and raised prices.
For the past two years, US and European organisations have fought to restructure procurement processes and manufacturing capabilities to bring complex, necessary components closer to home.
Slump and spike
Now, it appears as though the scramble to create supply—twinned with other economic pressures like inflation—has resulted in a glut of high-end tech components. The global slump in demand for manufactured goods has been accompanied by a spike in supply chain spare capacity across Europe, Asia and North America in December. This is the largest amount of slack on global supply chians since July 2023. According to GEP, “a manufacturing recovery is still some way off.” Their report adds that “recessionary conditions persist in Europe.” As a result, purchasers at the region’s manufacturers are cutting back at a pace “rarely surpassed in two decades.”
Procurement professionals will, according to David Doran, vice president, consulting, GEP, have “greater leverage to drive down prices in 2024” on behalf of their companies, as slowing orders throughout the value chain point to “stronger headwinds ahead.”
The current state of affairs was predicted last year in a piece written for the Harvard Business Review. PS Subramaniam noted that, when pandemic drove remote work to spike in early 2020, the same demand-oversupply cycle played out with tablets and laptops.
“Three-plus years later, we’re seeing the stark aftereffects of that spike in demand. After the race to order key components and manufacture products, suppliers are left with mountains of excess inventory as growth has slowed to normal levels. In the tech industry, it’s common for warehouses to be full of now-outdated semiconductors and other technology components,” he writes. “Beyond the obvious environmental cost, an inventory glut of high-end electronics components is an expensive problem. Excess inventory is a $250+ billion problem in the U.S. alone.”
