Suppliers in the Yangtze River Delta are facing material shortages and production cuts due to the epidemic, and some customers may "redirect orders" in the short term

According to the official Weibo account of Healthy Jiangsu, from 0:00 to 24:00 on April 26, Jiangsu added 8 new local confirmed cases (6 in Xuzhou, 4 of which were converted from asymptomatic infections; 2 in Suzhou), and 76 new local asymptomatic infections (1 in Wuxi, 47 in Xuzhou, 11 in Changzhou, 16 in Suzhou, and 1 in Yangzhou).

Among them, Kunshan, as a "major city" for the supply of consumer electronic components, has been hit by a sudden resurgence of the epidemic in recent days, which has once again cast a thick shadow on the already grim industrial situation.

An employee of a laptop terminal factory told Jiwei.com: "In fact, the lockdown in Kunshan was almost over a week ago. The entire city was originally expected to be 'unsealed' on the 20th; however, as soon as the roadblocks were removed, multiple infected people appeared immediately. So the 'unsealing' has become a distant prospect."

Changes in supply chain order share

As logistics and transportation continue to be blocked, the inventory of many local factories has gradually bottomed out. In order not to affect product sales, some terminal brands plan to reallocate the original order ratios of suppliers.

Jiwei.com mentioned in a previous report that in order to reduce the impact of the epidemic on Airpods shipments, Apple may have transferred some orders and transferred parts originally produced in supplier factories in the Yangtze River Delta to "epidemic-free" factories of other manufacturers.

In order to confirm this speculation, Jiwei.com also contacted more Apple suppliers for further information. More than one manufacturer said that if the customer is Apple, "order transfer" is very likely, and its primary consideration is that its own shipments will not be affected. However, the amount of transfer will still be determined based on the supplier's production capacity.

It is understood that the lockdown in some areas of Kunshan has lasted nearly a month. Not all employees can report to work, and the transportation of materials is also hindered. Therefore, the production and operation of many local companies can only rely on the factory inventory and employees who originally lived in the factory dormitories to maintain. Apple's supply chain companies are definitely not the only ones who have encountered this.

An industry insider believes: "In fact, any end customer with a relatively large demand will consider transferring orders when faced with the risk of suppliers stopping production at any time. This includes not only Apple, but also many domestic first-tier brands."

"Usually, large-scale factories will have a certain amount of material inventory, and Taiwanese companies may be relatively conservative, but they cannot sustain themselves for too long with inventory alone, so it is expected that suppliers will transfer orders to other factories for production, or that customers will adjust the order ratio." The other party added. Especially in the face of the declining market demand since this year, terminal brands must ensure that sales will not decline due to insufficient supply.

However, in the view of most industry insiders, even if end customers "transfer orders", the impact on their supply chain will only be short-term, because for end manufacturers, there will be many factors to consider, such as cost, the ability of other manufacturers to undertake, and excessive concentration of supply. It is impossible to distribute orders to other suppliers in large quantities over a long period of time.

A sales representative of a company that is in charge of docking with Apple also told Jiwei.com: "There must be some orders transferred due to this round of epidemic, but due to sudden changes, customers actually have to consider the issue of suppliers' capacity. I think it is difficult to transfer large batches."

Only a short-term phenomenon

It is well known in the industry that different suppliers of the same product basically compete for orders through bidding, so the prices that end customers pay to each supplier are also uneven. Being forced to adjust the order share is likely to increase the terminal procurement cost. Therefore, after the supply chain production resumes stability, customers will also allocate orders according to the original plan in order to control costs.

If the supplier itself has qualified production lines in other regions to take over, it can further weaken the impact of customer "order transfer".

A supplier told Jiwei.com: "In fact, when Apple selects suppliers in the early stage, it will assess the suppliers' risk resistance and require them to prepare for production cuts and supply cuts caused by force majeure. For example, we choose to set up production lines for similar products in two different locations. Once one factory is temporarily unable to produce, the order can be immediately transferred to another factory, provided that both the factory and the production line are certified by Apple."

"However, since Apple's investment in special equipment is very large and the cost of setting up production lines is also very high, even if there are multiple factories, there will not be much idle production capacity reserved specifically for some unexpected situations."

In addition to transferring orders, Apple itself often reserves some "inventory" to deal with sudden risks. The reason for the quotation marks is that the pressure of this part of the inventory is mostly borne by suppliers.

The aforementioned supplier told Jiwei.com that in fact, the number of orders Apple places on manufacturers is often greater than its actual sales forecast for the current period. Especially for new products that have just been launched, when market feedback is not yet clear, Apple will basically increase the supply chain's inventory and then pull goods based on actual sales. If the market response to the product is good, everyone will be happy. Otherwise, the pull will be postponed. This part of the inventory may also appropriately improve the supply problem in the event of repeated domestic epidemics.

To sum up, the risk of order transfer caused by this round of epidemic is not that large. The reason for the above situation is that the domestic epidemic control has led to a short-term reduction in production in some factories.

It is worth continuing to pay attention to the fact that under the policy of maintaining social isolation in China, it is unknown when the epidemic prevention work can be completed, which has also made terminal manufacturers pay more attention to strengthening supply chain risk control. A mobile phone supplier revealed to Jiwei.com: "After this round of epidemic, major brands have put the issue of pushing suppliers to build factories overseas back on the agenda."