Supply chains control inventory levels amid global uncertainties

China’s zero-COVID policy and sudden citywide lockdowns in Shenzhen and Shanghai are testing the flexibility and responsiveness of supply chain companies.

Factories have been stocking up on spare parts to cope with all of the changes in China’s production environment, according to supply chain companies. This includes fuel generators to avoid power shortages, as well as emergency pandemic supplies such as sleeping bags, food rations, and power banks for employees in case of sudden lockdowns.

From the US-China trade war to the COVID-19 pandemic, supply chain companies in China have had a difficult time keeping up with all of the changes, doing their best to strengthen their ability to respond flexibly.

Compal Electronics CEO Martin Wong pointed out that the notebook industry still faces three major crises – components shortage, geopolitical war, and the COVID-19 pandemic.

Components shortages have been haunting the notebook segment since 2021. Power management ICs (PMIC) and MOSFETs remain in serious short supply at the moment, while mixed shortages of components are also causing inventory management difficulties for most vendors.

ODMs are still having trouble keeping up with orders placed by customers, while their visibility of orders for the second half of the year is clouded at the moment. Economic turmoils in Europe and the US are also prompting companies to take a more conservative attitude over consumer spending in the second half of the year.

The industry generally expects the notebook shipments in 2022 to be at about the same level as or slip slightly from 2021.

The ongoing Russia-Ukraine war will further increase the economic risk in the second half of the year, particularly in the European market due to their close proximity. For example, Germany, which relies on Russia for oil and gas, is feeling the pressure from inflation due to the war. As a result, the Germany-based think tank Kiel Institute for the World Economy has recently revised Germany’s 2022 economic growth rate, dropping the percentage from 4% to 2.1%.

With EU’s economy under the impact, Asia’s economic performance will relatively be affected. A report from Australia and New Zealand Banking Group (ANZ) pointed out that war could lead to a global economic slowdown, particularly in the EU market. The EU market is China’s second-largest trading partner, accounting for 15% of its total exports. If the EU’s GDP growth falls by 1%, China’s export growth will slip by 0.3%.

In response to the mixed shortage levels of components, various supply chain companies had raised their inventory levels in 2021. As such, strict managment of inventory becomes an important task for vendors in 2022.