Trade tariffs: Assessing risks and diversifying global supply chains

Ted Romanowitz, Principal Consultant, Futuresource Consulting 

The world appears to be a tumultuous place. Concerns about military conflicts, governmental leadership shifts, economic stagnation combined with inflation, and geopolitical tensions, including trade wars and threats of tariffs, permeate the landscape. The recent global happenings and ongoing discussions around international trade have prompted professional audio-visual brands to evaluate supply chain strategies, including component vendors and manufacturing partnerships. 

One potential tactic is to order substantial inventories to be delivered prior to tariff implementations to avoid them. Doing so requires capital investments where cash flow might be used elsewhere more optimally. Incremental costs must be incurred to expedite parts, assembly, and delivery. Once landed, there are expenses related to warehousing, inventory carrying costs, depreciation, and loss. Risk is associated with ordering the wrong mix of Stock Keeping Units (SKUs), leading to discounting to liquidate inventory before it becomes obsolete. Moreover, if threatened tariffs are never imposed, then the investment would be for naught. 

Evolving jargon includes OOC (Out of China) and OOT (Out of Taiwan) as brands seek perceived safer harbours to source parts to produce finished goods. However, the “not all that glitters is gold” aphorism seems particularly applicable as plethora of direct and indirect costs, measured in both time and money, are associated with sourcing shifts that may possibly exceed the incremental costs incurred via tariffs imposed. 

The global LED display marketplace may be particularly impacted because of its high reliance on China based supplier and manufacturers. In late November, Futuresource published the Global LED Supply Chain Report that profiles 36 component providers, 20 China-based branded OEM/ODM vendors and 15 contract manufacturers. It also provides insights on component providers and LED factories outside China and Taiwan, including 21 companies manufacturing LED solutions in North America, Europe and the rest of APAC. 

Several countries often mentioned as evolving manufacturing hubs include India, Malaysia, Thailand, and Vietnam in Southeast Asia, Slovakia and Turkey in Europe, as well as Mexico and Canada in North America. Each has developing technology manufacturing centres, but the assurance of a guaranteed, sustainable capacity with sufficient quality commensurate with brand image must be meticulously evaluated. 

Best-in-class pro AV brands have proactively begun this process by routinely evaluating component vendors and manufacturing partners to maximise quality while minimising Bill of Material (BOM) and production costs. Second sourcing and geographical diversity are two strategies to harden supply chains without incurring significant finished goods investments. 

Diversifying entire ecosystems includes relocating supply chains, product manufacturing, and distribution warehouses closer to the customer to improve sustainability. Geographically dispersing duplicate facilities can prevent disruptions, whether a result of unexpected events, whether natural or human made. 

Moreover, the technology transition from packaged LED alternatives like SMD and IMD to package-less variants MiniLED Chip on Board (CoB) and MicroLED Chip on Glass (CoG).  When mass transfer manufacturing techniques are mastered and economies of scale reached, Average Selling Prices (ASPs) are expected to reach those of flat panel LCD today by the end of this decade, driving a strategic inflection point.  Futuresource is closely tracking this supply chain evolution as only fifteen to twenty suppliers are expected to master manufacturing of these new advanced technologies.      

There are numerous independent variables beyond our control, complicating business strategy and planning. Wise organisations will focus on identifying and assessing the likelihood of potential impacts, investigating and evaluating contingencies, as well as proactively implementing measures to mitigate risk and optimise business operations during turbulent times as well as strategically positioning themselves for future technologies.    

Stay ahead in the display industry with Futuresource Consulting's upcoming ISE report. This comprehensive report will cover all things displays, providing you with the latest insights and trends. Don't miss out on this valuable resource. Sign up today to be the first to receive the report as soon as it's available! 

About the author

Ted Romanowitz

Ted Romanowitz is a visionary product leader spearheading industry transitions in the Semiconductor, Consumer Electronics, Networking and Professional Audio Visual industries.  He held increasingly responsible marketing roles at Intel Corporation over his twelve year tenure, helping drive the highly successful Centrino Mobile Technology launch and Gigabit Ethernet market transition as well as owning the global consumer processor and chipset roadmap.  

Romanowitz begin in the Pro AV industry in the 1990s expanding the Vivatek brand for Delta Products and has spent the past decade focused on LED product management with Industry leaders Leyard/Planar and Christie Digital Systems. Currently an independent Consultant and Contributing Assistant Professor at Willamette University's Atkinson Graduate School of Management, Ted lectures, writes and consults in the areas of new product planning, go-to-market strategy, product and sales management.  

In August 2021, he co-authored a comprehensive industry report on MicroLED display technology focused on the Pro AV and Consumer Electronics industries.