The economy is forever changing and is subject to even minor mishaps worldwide. The COVID-19 pandemic and other events since 2020 have rapidly changed how companies view their budgets. Managers have closely watched supply chains to monitor the price of goods and how it affects their production. What is the global supply chain’s status in 2023 and how can businesses look at today’s supply chain and form an IT purchasing strategy?
How Does the Supply Chain Look?
2020 through 2022 caused devastation for manufacturers in many industries. First, the pandemic caused shutdowns worldwide. Due to local and state regulations, the virus forced many factories to shut down or significantly scale back production.
Less production led to a shortened supply, but the demand stayed the same or increased. Prices for goods skyrocketed across markets. Research from the Federal Reserve Bank shows commodities increased in price by 19% between May 2020 and May 2021.
In 2022, the markets looked to be promising until February. Russia invaded Ukraine and caused turmoil in the markets. The global supply chain faced numerous disruptions because countries stopped importing oil and other goods from Russia. In 2023, businesses will still feel the pain from the previous year, but hope is on the horizon.
Unless another significant international incident occurs, the supply chain is correcting itself in 2023. Interest rates hit the bottom floor in 2020 as the federal government tried to encourage spending. The past year has seen higher interest rates, with the Federal Reserve expected to continue raising them to avoid a recession. Higher interest rates have reduced consumer spending and alleviated some sectors.
What Is the Electronics Outlook in 2023?
IT businesses looking to purchase hardware in 2022 faced a steep obstacle — chip shortages. Semiconductor production dipped because of the pandemic, especially stay-at-home orders in countries like China. Cities like Shanghai saw multiple lockdowns as the nation implemented zero-tolerance laws for leaving home. In 2023, semiconductor production will have a glimmer of hope for companies building an IT purchasing strategy.
The semiconductor shortage has primarily affected the automobile industry, with numerous automakers scaling back production. However, electronics manufacturers like Samsung say they are ramping up production of these microchips. The increased supply of semiconductors will help IT prganizations find memory chips at better prices than in the last three years.
IT companies will also see a boost from the federal government. In August 2022, President Biden signed the CHIPS and Science Act. In late February 2023, the administration announced the National Institute of Standards and Technology’s Chips for America program, which provides $50 billion to stimulate semiconductor production in the United States.
What Electronics Will Disruptions Continue to Affect?
Semiconductors could see improved supply and better prices in 2023, but the outlook is not as rosy for all products. For example, IT enterprises and consumers should expect high costs for panelboards. This product saw price increases due to galvanized steel supply. The rust-protected steel saw a price increase of 28% in 2022 and its costs have remained relatively unchanged.
IT companies should also be wary of switchgear prices. This family of fuses, circuit breakers, transformers and other products will likely suffer from shipping disruptions worldwide. Ports in places like California are seeing less congestion and lower shipping rates.
However, some carriers are canceling their ships’ voyages to increase the prices again, thus inducing more delays. These delays could affect many IT businesses and force them to rethink their procurement strategies in 2023 and beyond.
How Can Businesses Create an IT Purchasing Strategy?
IT organizations depend on panelboards, switchgear and other valuable tools. Minor shakeups in the steel and shipping industries could significantly affect these businesses and their supply chain. How can they create an IT purchasing strategy resilient to disruptions? These methods demonstrate what enterprise leaders can do.
The first step in forming a strategy is optimization. Today’s supply chain disruptions demand IT companies create lean yet effective operations. International incidents have caused manufacturers to consider reshoring their production because demand for domestic products has increased.
One way IT businesses can optimize their supply chain is by consolidation. An organization typically has multiple suppliers delivering parts, but that strategy can lead to inefficiencies and a higher risk for disruptions. Consolidation means an IT enterprise uses one vendor for numerous links in the supply chain. Companies should identify one vendor they trust the most and take advantage of their specialties as much as possible.
Another popular procurement strategy for IT organizations is diversification. This process comes on two fronts — diversity in the supply chain and the workforce. First, diversity creates agility and flexibility in the supply chain. It is different from consolidation because businesses choose from numerous suppliers instead of one. They can pick which one gives them the best price on products.
Diversification has an advantage over consolidation because it allows options. However, it does increase contact points in the supply chain. The past three years have shown how fragile the supply chain is — a stuck boat in the Suez Canal can affect the industry for weeks. The consolidation or diversification debate heavily depends on the IT company’s needs and its supply chain size.
Then, there is the diversity of people in the supply chain. Working with minority-owned businesses can significantly help an IT organization’s operations by opening up new avenues it has not seen before. Diversifying suppliers demonstrates a company takes its social responsibility seriously and can lead to higher environmental, social and governance scores (ESG) and sustainability.
Going green is more than a 2020s trend. Enterprises in IT and other industries have made pledges to find more sustainable practices in their procurement. Changing an IT purchasing strategy to be more sustainable shows social responsibility and helps ESG scores. This metric tracks how a company includes climate change, renewable energy and greenhouse gas emissions in purchasing decisions.
IT businesses should know ESG scores because consumers and investors track them. They see sustainability efforts and will use their pocketbooks to make decisions. An Ernst and Young survey finds 78% of investors want to see organizations focus on ESG factors.
Developing Purchasing Strategies for Maximum Efficiency
Today’s economies have become interconnected worldwide. The global business opportunities for IT enterprises are vast. However, a longer supply chain has vulnerabilities, as seen in the last three years.
These problems have led IT companies to alter their purchasing strategies. Now, they are finding ways to become more sustainable, agile and efficient as time goes on. The outlook of electronic products looks promising, but the supply chain’s fragility could change these projections if more disruptions occur.
Emily Newton is the Editor-in-Chief of Revolutionized, an online magazine discussing the latest industry innovations and trends.
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