What's going on with the supply distribution disturbance?
No one likes waiting for their products, there is now tremendous frustration within the delivery and the supply chain channels and customers have many concerns. The supply chain is now at a grind, but the situation remains extremely fluid. The supply chain is always in a grind, but there usually are only a few issues involved. Unfortunately, today, there are so many issues in play. This makes it very different from past shortages and disturbances.
There are so many complex situations and variables that make this problem exponential. One of the most significant issues today is that you are dealing with things never dealt with in the past, not only from a technology standpoint, but from a labor standpoint as well. Numerous vertical industries are affected more today than ever before.
Labor is one of the newest issues that people are dealing with today. Just walk by a local restaurant, or a retail store and the shortage of labor is quite apparent.
So, what are the two main reasons why we are in this mess today?
#1. Components, especially semiconductors!
Welcome to the perfect storm, more and more people are working from their homes, buying new computers, remodeling their homes and buying new appliances, new iPhones, new laptops and all the latest gadgets. Demand is up, supplies are down, this is taxing the entire system and bringing it to a standstill.
Semiconductors, has always been Motorola Solution's longest lead time component when it comes to two-way radios. But, this semiconductor problem has been caused by many factors, including but not limited to, the 5G boom, increase in working from home, and the many tools
that an individual needs to work from home. We need to mention remote schooling and learning for kids too.
One just needs to look at the technology in a car today, compared to what was in a car three years ago. The demand for semiconductors has increased dynamically.
When the coronavirus hit, everything went to pause mode, and no new efforts to increase production lines were in the works. The semiconductor industry requires billions of dollars and many years to bring a new production line into play. All major industries today are struggling to get parts. Motorola Solutions, compared to General Motors, would be considered a small player. When industries today buy necessary components, they are either doubling or tripling their orders to ride out the storm. This further complicates and creates more problems within industries, as companies are trying to buy in greater amounts than ever before.
The coronavirus is something that we all are learning to deal with, but in South East Asia, the problem and the situation are much worse. Countries like Malaysia, China, Taiwan, and Japan, to name a few, are having their industry shut down by government agencies, due to coronavirus breakouts.
Shutdowns like this create a domino effect that further restricts the ability to acquire the necessary components that are in short supply today. Trying to become a bit more stable with the coronavirus situation today, is a must. If we make commitments with partners, but a government agency shuts them down due to outbreaks, these commitments are not kept, More and more downtime occurs.
This is unprecedented in Motorola Solution's entire history, we have never seen anything like this before.
A third component that comes into play is transportation is getting product moving back and forth between the supply chain, especially with the increased growth in e-commerce, is becoming a nightmare. With the increased demands in products, this is causing a major concern with UPS, FedEx and many other suppliers. It is very difficult to get labor, trucks, and other necessary components necessary to move merchandise up and running.
This is the nightmare and the extremely fluid situation we are facing today. Although Motorola is considered a smaller player, with some bigger companies like GM, they have made a tremendous commitment in purchasing large amounts of the components necessary to produce their products.
They are, actually, re-evaluating many of these components that make up their two-way radios.
An example, if a component is needed, in this case, one that gives the radio the ability to communicate in a Wi-Fi environment, but that accounts for only 20% of sales. Motorola is removing that component, so the other 80% can be manufactured and shipped to customers.
As of today, based on current information, and please remember this is a very fluid environment with many factors in play, many in our industry believe that this problem will continue until mid-2022. Again, please remember this is a very fluid situation, we have never seen anything like this in our entire history.