We consistently receive inquiries from customers regarding the diversification of their supply chains. Following the severe COVID-19 lockdowns, particularly in China, there is a strong inclination to mitigate risk by diversifying.
Typical inquiries in this regard have been:
- Can we qualify a second source in Africa or South America?
- We aim to prioritize production in Europe in the future; which European manufacturers can you recommend?
- India is reportedly a more cost-effective production location; can we switch to an Indian manufacturer?
It is fundamentally important to understand that most LCD manufacturers are located in Asia, specifically in China and Taiwan, and for higher-value products, in Korea or Japan. Additionally, there are production facilities in Southeast Asian countries, though these often belong to conglomerates from the aforementioned nations, predominantly Chinese. In some cases, only specific production steps are relocated to these countries.
For companies supplying to the USA, and thus required to avoid Chinese products due to protectionist regulations, outsourcing to countries like Vietnam can be an alternative. While the LCDs continue to be produced in China, a significant portion of the assembly takes place in Vietnam, ensuring the LCDs are not classified as Chinese products. For these companies, manufacturers from Taiwan also remain a viable option. We maintain relevant contacts.
Achieving complete independence from Asia presents a different scenario, as this is generally not feasible. In Western industrialized nations, there are, at best, only smaller-scale LCD production lines. Specifically, the back-end process, which involves the assembly from LCD to LCD module, is often not cost-effective due to higher labor costs. This also applies to Eastern European countries. Nevertheless, through our in-house assembly capabilities, we can offer module manufacturing in Germany.
Other low-wage regions such as India, Africa, or South America are also not available as alternatives, as there is simply no LCD manufacturing there. Furthermore, the necessary infrastructure, which has developed over decades in Asian countries, is generally lacking: cleanroom specialists, machine manufacturers, and material suppliers have all established themselves in close proximity to their customers. Moreover, the highly specialized personnel required to manage the extremely sensitive LCD production process are exclusively available in the Asian market.
So, what steps can you take to better secure your supply chain?
- Second-Source Strategy: Provided you procure sufficient volumes, you can distribute these across two manufacturers. Viable options include manufacturers in different regions of China or a combination of China and Taiwan. However, it is important to note that costs will be slightly higher, as purchasing smaller quantities from each supplier will result in a loss of volume-based advantages.
- Qualification of Alternatives and Avoidance of Exotic Components: Even at the project's outset, you can qualify alternative electronic components, allowing for the use of various ICs, for example, which the manufacturer can switch between based on market availability. Bottlenecks can arise not only in LCD production but also with the components utilized.
- Early Ordering: Supply chains and production have repeatedly experienced disruptions in recent years. Procure early and ensure your inventory planning accounts for sufficient stock. A beneficial side effect of early procurement is the ability to utilize sea freight, thereby reducing CO2 emissions.
We would be pleased to provide you with specific proposals for your project. Please do not hesitate to contact us!
