The challenges facing today’s electronics manufacturers are wide and far reaching. Like many businesses, global instability has led to supply chain fragility and the sourcing of semiconductors, rare earth materials and passive components remains volatile due to trade restrictions, transport bottlenecks and heavy regional over-concentration.
Not only that but rapid innovation means that component obsolescence is occurring more quickly than ever before, forcing costly redesigns or last-minute substitutions to maintain production continuity.
Q&As
- What are the biggest supply chain challenges facing electronics manufacturers today? Component shortages, rising material and labour costs, geopolitical uncertainty and logistical disruption are putting pressure on electronics supply chains. Manufacturers are responding by combining better data, technology and AI with human expertise and closer collaboration, while recognising that adaptability is essential in an unpredictable market.
- Why are component shortages likely to remain a challenge? AI is driving rapidly increasing demand for memory and storage, while available production capacity is struggling to keep pace. Manufacturers are therefore facing incomplete allocations, longer lead times and difficulties maintaining inventory. The key response is greater transparency, real-time data sharing and collaborative planning between customers, manufacturers and suppliers.
- How can manufacturers build more resilient relationships with suppliers? Trust, transparency and long-term agreements are central to improving supply chain resilience. Sharing demand forecasts and data can help manufacturers and suppliers reduce variability, smooth production and manage shortages more effectively. Strategic inventory, supported by longer-term supply agreements, can also provide greater security.
- How are regional manufacturing trends changing electronics supply chains? Geopolitical tensions, trade policies, sustainability requirements and supply chain vulnerabilities are driving a shift towards reshoring, nearshoring and regional manufacturing hubs. While this can increase costs, it can also create shorter, more resilient supply chains and reduce exposure to global disruption.
- What will a truly resilient electronics supply chain look like? The supply chains of the future will need to be multi-sourced, regionally diversified and digitally enabled, while remaining aligned with changing growth markets such as AI, advanced computing, robotics, EV charging and defence. Manufacturers will need to balance cost, risk, availability and responsiveness by combining technology and data with human expertise and strong supplier relationships.
As such, supply chain strategies within the industry are evolving and how to navigate component availability, forecast demand, strengthen supplier collaboration and improve operational resilience, is now being baked into manufacturing strategies.
Advantech is a global manufacturer of industrial computing, embedded platforms and IoT automation solutions. And here, we speak to the company’s Business Operations Director Europe, Ronald Groen, to find out more about this rapidly evolving sector.
What are the biggest supply chain challenges electronics manufacturers are facing today?
RG: It’s important to understand the market volatility that exists today and how this is impacting businesses and supply chains. Today’s challenges are mainly focused around component shortages, and rising material and labour costs. And of course, there are further challenges in the geopolitical sphere which are causing logistical disruptions.
This has certainly led to an increase in supply chain collaboration, and that has intensified enormously since the COVID pandemic.
Despite the unpredictability of the market, manufacturers still have to make sure they find ways of using the data that is available to them, and that all starts with how clean the data is and that is a key driver for us.
Naturally, we’re leveraging AI for analytics. However, from the experiences we’ve seen in the market, the accuracy of AI is not quite there yet. So manufacturers need an adaptive, dynamic model where they can monitor, adjust and learn about what is happening.
It also takes time to invest in skills to make sure you have the right people in the right place. In the end, it is the people who have to make the final decisions after all. It comes down to a combination of technology, data, adaptability and working together to come to the right solution; and I always say, 80% is good enough.
What is the current situation around component shortages and what is causing them?
As much as AI is seen as a solution to so many problems, it is also the cause of some challenges as well. AI is increasing the demand for memory and storage. And the capacity we currently have versus the demand is not in sync, and therefore there is always a shortage, and that’s driving challenges, delays and long delivery times.
Often manufacturers don’t receive the full allocation of their orders, and so are looking at different ways to make sure their inventory is where it needs to be. However, this is proving really difficult to maintain.
And then, on the other side of the same coin, customers are also trying to stabilise the price.
Of course, this situation is nothing new, and shortages are simply part and parcel of the DNA of the electronics industry. So, we have learned to live with this situation and adapt accordingly.
Learning starts with open and transparent communication between stakeholders, sharing the visibility available and the correct use of real time data. Planning and forecasting shouldn’t be a one-party undertaking. Rather, it should be driven by customers, the manufacturer, and the suppliers, creating a collaborative platform.
Clear expectations then need to be established, managed and measured. And it is vital that there are long-term supply level agreements in place between customers and suppliers, so that all stakeholders can leverage the technology and manage the risk. Shortages will always be there in the electronics space, as the market is still very unpredictable, but for us, that’s been a key learning from the past decade.
How can manufacturers build stronger relationships with suppliers to improve visibility, collaboration and resilience across the supply chain?
First of all, a relationship should be based on trust and transparency. And if key stakeholders can work together on that basis then it can really help to remove variability.
There are normally significant peaks and troughs within the rhythms of a business, but collaboration can bring those together. Establish a line to work to; this will not only improve the situation for the manufacturer towards their end customers, but it will also help suppliers to build a smoother production process for themselves.
Looking at the market for memory and storage products, it’s easy to see the shortage that has been created due to the imbalance between demand and supply. Using the knowledge and data available, manufacturers and suppliers have tried to work together to make sure an allocation is provided to enable the manufacturer to serve their customers.
However, manufacturers also want to secure business with their customers, so are beginning to ask whether consumer grade components would suffice should industrial grade components be unavailable.
As such, some manufacturers are lowering requirements, which means that they need to ensure that their inventory stock levels – on both industrial grade and consumer grade components – are in sync with the demand they are experiencing. Company’s adopting this tactic are essentially taking for granted that the lifetime of consumer grade products will be shorter than an industrial grade equivalent, hoping that the market will return to normal.
Like many businesses electronics manufacturers are moving from a traditional ‘just-in-time’ mindset towards holding more strategic inventory and building greater supply chain resilience.
However, the problem is that due to the shortages in the market, it’s really hard to maintain the inventory required. This means that lead times are becoming longer, which causes a knock-on impact to customers.
Therefore, inventory needs to be balanced with long-term agreements, where prices are fixed, ensuring the finance for the inventory by asking customers to pay upfront.
How are changing customer expectations influencing the way electronics manufacturers operate?
Customers now expect speed, precision and customisation for their products and services, and as such, operations have shifted from a product to a customer-centric model. This means that manufacturers need to offer tailored solutions to really match what the customer expects.
The relationship has also become value-driven which means clear supply chain transparency is essential. We need digital engagement and to be resilient in response of volatility. And that means we need to have the workforce in place to manage those supply chain disruptions.
We also need to make sure that the lifecycle value of products is maintained so that manufacturers can deliver for their customers in the long-term. Sustainability and durability is a real differentiator in this market. Consumer expectations are changing the sector into a customer-driven, sustainable, digitally enabled ecosystem, where agility and transparency are as important or even more important than the hardware itself.
What impact are regional manufacturing trends having on global electronics supply chains?
Fundamentally, this trend has driven the restructuring of production. And the drive behind this shift is based around geopolitical tension, trade policies, supply chain fragility, sustainability and regulations. The impact on electronics supply chains means we have seen shorter, more resilient flows.
The sector will almost certainly see more regional hubs, such as those within our own company. And although it will also result in some higher cost, it also has strategic value.
Manufacturers will also need to adapt their technology and infrastructure to adjust to the trend of reshoring, nearshoring and this more regional concentration.
Looking ahead, what does a truly resilient and high-performing electronics supply chain look like?
It’s not an easy answer, but if manufacturers want to build a high-performance and resilient supply chain, there are a couple of factors to consider.
Success will be multi-sourced. It will be regionally diversified, digitally enabled and will need to be aligned with the strategy around current growth sectors.
Areas such as AI, defence, advanced computing, EV charging and robotics, represent the balance where cost, service, risk and responsiveness is really making supply chains truly resilient and high-performing.
In preparation, manufacturers will need to prepare to diversify suppliers and regions, by leveraging multi-sourcing, market intelligence and by introducing inventory buffers.
Conclusion
The conversation with Ronald highlights how the electronics industry is entering an era where supply chain resilience is no longer simply an operational consideration, but a fundamental part of business strategy. Persistent component shortages, geopolitical uncertainty, rising costs and increasingly complex customer requirements are making traditional approaches to sourcing and inventory management harder to sustain.
While technology, AI and real-time data are providing manufacturers with greater visibility, it’s clear that technology alone cannot solve every challenge. Clean data, experienced people, strong supplier relationships and the ability to adapt quickly remain equally important.
Collaboration is therefore emerging as one of the industry’s most important assets. Greater transparency across the supply chain can improve planning, establish clearer expectations and help organisations manage shortages and fluctuations more effectively.
Ultimately, the resilient electronics supply chain of the future will need to balance cost, availability, responsiveness and risk. As demand continues to grow across areas such as AI, advanced computing, robotics, EV charging and defence, manufacturers will need to combine digital capabilities with human expertise and closer partnerships across the supply chain.
The result will not necessarily be a supply chain that eliminates disruption, but one that is better prepared to anticipate it, adapt to it and continue delivering for customers when it occurs.
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