In 2021, lead times for new equipment stretched up to a year, partly due to factory shutdowns caused by the COVID-19 pandemic. As we head into increasingly uncertain times, it's wise to think long-term about your spare parts strategy now says Erik Lervåg, senior engineer IT/OT at Sopra Steria Norway.
In 2021, during the pandemic, sourcing new equipment and parts was a nightmare. Many factories that produced components – especially transistors and computer chips – were shut down due to the COVID-19 virus.
That same year, the Suez Canal was blocked by a ship stuck for seven days, forcing other cargo ships to take alternative routes around Africa. All of this resulted in delayed deliveries and lead times of several months for both information technology (IT) and operational technology (OT) equipment, which in turn caused project delays and postponed repairs. In some cases, manufacturers chose to deliver unfinished products, such as when Tesla delivered cars without USB ports and charging stations due to the chip shortage.
Operational resilience
During "good times," we can count on suppliers, importers, or wholesalers to have a small stock of the parts we need, allowing parts to be delivered within a few days or even hours. When production halts, this is often an acceptable time frame for obtaining repair parts. In tougher times, however – like we saw in 2021 – you can't count on such short delivery times.
That's why ensuring operational resilience is so important. If you wish to secure your production, you need to take steps to guarantee the availability of the parts and equipment you need. One option is to enter into a service agreement, also known as a Service Level Agreement (SLA), which includes terms requiring your supplier to maintain a spare parts inventory. The easiest and safest route, however, is often to keep your own spare parts inventory.
With your own local spare parts inventory, you eliminate delivery times, you can perform repairs immediately, and you minimise production stops and downtime. Lost production is a cost that must be factored into the equation. This is particularly relevant in OT, where systems typically have a lifespan of ten to thirty years. A local spare parts inventory also mitigates the impact of equipment and parts being discontinued by the manufacturer.
On the other hand, maintaining an inventory can negatively impact certain key financial metrics. It can affect liquidity ratios, credit periods, and working capital. But when weighed against the losses incurred from production downtime, most people focused on these figures can be persuaded of the benefits.
Global influences
Taiwan’s TSMC holds over 50% of the transistor market share, while South Korea’s Samsung accounts for about 17%. Almost all electronics rely on computer chips, which, in turn, are made from transistors. Meanwhile, South Korea faces threats from North Korea, and Taiwan faces pressure from China. Any disruption in the supply chain from these producers will have global repercussions, as we experienced in 2021.
A common denominator for both countries is the involvement of the USA in maintaining stability. The US is formally allied with South Korea, and under the Biden administration, the US repeatedly stated its commitment to defending Taiwan – a notably clear and direct stance in diplomatic contexts.
However, on November 6, 2024, it was confirmed that Donald Trump was elected as the next president of the United States, and he has so far taken a less clear stance on Taiwan. In some cases, he has avoided answering questions about whether he is willing to defend Taiwan, and in other instances, he has said that Taiwan must pay for such support.
Many countries are also building trade barriers, making cross-border commerce more expensive. In recent years, both the EU and China, as well as the US and China, have increased tariffs on several goods. In some cases, they have imposed trade bans on certain products and companies. During his election campaign, Donald Trump also promised tariffs on all imported goods to the US from all other countries.
Shipping routes are also affected. The Red Sea, which is the gateway to the Suez Canal, is plagued by military conflicts involving Israel, Palestine, Lebanon, and Iran, and to some extent, the US and Yemen. The alternative route around Africa takes an average of 7-10 days longer and naturally increases shipping costs – and thus, product prices.
European businesses would be wise to prepare now for more turbulent times ahead. One measure they can take is to secure their own access to spare parts, both for maintenance and new projects.