Steve Flagg is the CEO and founder of Supplyframe.
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It’s been a wild ride for consumers—and for consumer electronics manufacturers and retailers.
Things went into high gear during the pandemic, when consumer electronics and durables sales spiked as people began spending all their time at home. People updated their kitchens with new appliances; ramped up spending on computers to support their new work-from-home and home schooling situations; and bought game devices, TVs and services to entertain themselves.
The global consumer electronics market reached $1.1 trillion in 2021, Statista said, a huge increase from 2020. It was a complete departure from normal demand and seasonal trends. Companies struggled to keep up with demand, and everything seemed to be in short supply.
But recently demand for electronics has begun to shift again.
While 2022 holiday sales were strong for products such as apparel, books and groceries, electronics and appliance stores fell short during the holiday season. In reporting its fourth-quarter results, Best Buy in March revealed its consumer electronics same-store sales fell 11.8% domestically and 10.1% in its international segment. It gave a cautious outlook for 2023.
Yet CES 2023 in January signaled that innovation is now picking back up and new electronics will be coming to market. The CES 2023 exhibit space was more than 70% larger than in 2022. More than 115,000 people flocked to Las Vegas to see new wearables such as Surgiverse from Abys Medical; immersive technology like Healium’s Sleepium, Heru’s VR-enabled eye exam solution and Lumus and Vuzix next-gen AR glasses; VinFast’s new electric bikes; and other new tech.
In another encouraging sign, Sony at CES declared that the shortage for its PS5 game console, which had been notoriously hard to find in stock due to supply chain challenges, is now over.
Our Commodity IQ data also reveals positive signs for a normalized supply-demand balance. In the second half of 2023, excluding memory devices, we expect 85% of semiconductor pricing dimensions to be stable and the other 15% to be in the buyer’s favor.
But Commodity IQ insights—which are based on 2 billion component design and demand signals—also indicate we won’t see true electronics supply chain relief until the middle of 2023.
So, how can you, as a senior leader, better navigate demand and supply chain ups and downs to achieve greater agility? And how can you make the right trade-offs to increase your company’s resilience and position for growth through efficiency, innovation and scale? Let’s take a look.
Analyze how you use your engineering resources.
Traditionally, engineering teams at consumer electronics product companies have worked on new innovations in a planned, linear fashion that progressed to a major product launch. These new products would ramp to volume very quickly to address market demand at the right time.
But now up to 60% of a company’s engineering capacity might be spent redesigning existing products, based on my experience in the industry. Companies and their engineers are redesigning products that have already been released to the market, not to add new functionality but just to address component shortages.
This was prevalent in the automotive sector. Companies changed their designs and processes and/or just sold cars without some features. As MIT Sloan noted, “A rearview camera might ship without augmented reality; USB ports might be missing, or hands-free driving limited.”
These things are largely hidden from consumers. But they hurt consumer electronics companies, whose engineering teams are unable to support their full product innovation.
Make sure you can both innovate and scale.
Consumer electronics companies have always followed a pattern of checking on obsolescence only for key components. But the biggest problem now is not whether components are available for the early product development stage. It’s understanding if those components can ramp up in volume fast enough to support manufacturing goals and meet consumer demand.
That’s the big challenge. Companies are constantly surprised, having to rework or delay product innovation. This happens because they don’t have a single view of outside intelligence on components, so they can’t agree on trade-off decisions to minimize their time to volume.
But companies that can identify key supplier constraints as early in the design process as possible and make design decisions based not just on cost savings, but also to minimize risk, are much better positioned to avoid new product introduction delays and ramp manufacturing.
This can be a competitive differentiator for manufacturers that are in competitive categories. If you have a product when customers want it, during the holiday shopping season or demand spikes, you are golden. But if constraints prevent you from getting your product out the door, all is lost.
Become more aligned, integrated and predictive.
Consumer electronics companies have written off billions of dollars in lost revenue and missed new market and innovation opportunities that could define market share for years to come.
Financial markets and consumers were patient in waiting for delays to subside. But as we’re reaching a new normal, they don’t want more excuses. They’re unwilling to wait anymore.
In our new normal, smart executives and companies will invest to:
• Break down silos of communication between engineering, finance, procurement and supply chain functions and departments to enable cross-functional decision-making.
• Work from the same, single digital thread that’s informed by always-on intelligence.
• Improve the ability to shift left from a design perspective, making trade-off decisions as early as possible in the new product introduction process to design for resilience, avoid cannibalizing engineering resources on redesigns and enable innovation and scale.
The new bar for success isn’t just unveiling the next product innovation, creating a category or redefining the customer experience. It’s combining and linking your innovation capability with supply chain operational agility, manufacturing capability and the flexibility to ramp as needed.
Companies that are more aligned, integrated and predictive will be the winners in a world in which supply chain volatility is more prevalent than ever and billions of dollars are at stake.
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