Benchmark Exec Talks Geopolitics, Reshoring & AI

Philip Stoten, journalist and founder of SCOOP , recently interviewed Benchmark’s Director of Global Supply Chain Solutions Michael Lucia. Benchmark Electronics is a $2.95 billion global EMS provider serving regulated and high-reliability end markets. Stoten and Lucia opened their conversation with the risks associated with the escalating conflict in the Middle East. Stoten: We often start our conversations talking about shortages, but today I wanted to begin with geopolitics. People are already asking you about the impact of the conflict in Israel. Can you share your observations on this situation before we delve into broader geopolitical issues? Lucia: Certainly. There are several component manufacturers in Israel, along with numerous technology companies. From the conversations I’ve had and our involvement, most of these companies have indicated that their operations have not been significantly impacted by the current conflict. However, the primary concern right now revolves around logistics and the challenge of moving finished goods out of the country due to the reduction in flight capacity to Tel Aviv, as many commercial airlines have canceled their flights. It’s worth noting that many of the suppliers we’ve spoken to either have their operations unaffected or have dual-sourced their manufacturing, producing the same parts in other locations. So, for now, it’s more of a logistical issue, but we are monitoring the situation closely in case it escalates and begins to affect the country’s infrastructure. Photo courtesy of SCOOP Stoten: Indeed, Israel is a significant technology hub from various perspectives, and it underscores the broader concerns we have about geopolitical disruptions and the impact on globalization. How are your customers responding to these challenges, and what are their expectations regarding your ability to adapt and modify the supply chain accordingly? Lucia: Customers are increasingly interested in understanding the country of origin for their major components and self-assemblies. They want clarity on where everything is sourced and assembled within Benchmark. This has led to discussions about the localization or regionalization of supply chains. Today, it’s generally viewed negatively if certain parts or assemblies have to cross an ocean. Customers are sensitive to this issue. During the onboarding process, especially for new product introductions, customers expect us to set up the supply chain correctly from the start. However, for existing products, factors like tooling costs, test equipment, or NRE can make it challenging to make immediate changes, but it’s always part of the ongoing discussion. Stoten: Looking specifically at North America, where [Benchmark] operations are based, you have a strong presence in the U.S. and Mexico. Are you observing a continuous shift in demand from Asia to these North American regions? Lucia: [Reshoring] it has gained momentum throughout the year. I’m currently working on more reshoring projects and speaking with more customers about it than at any point during the pandemic. There’s a significant demand for capacity. However, there is a concern about whether there will be enough capacity to meet this demand. From the EMS perspective, we tend to see Mexico as a low-cost region for high-volume production runs. Still, even at the sub-tier level, it can be challenging to find suppliers in Mexico with the same level of expertise and experience found in the United States. While there are excellent suppliers in Mexico, many are relatively new and still developing their capabilities. So, it does take time for them to reach the same level of competency. That’s something we’re closely monitoring. Stoten: Speaking of challenges, the topic of shortages has been prevalent for some time. What’s the current status of the supply and demand balance in the industry? Photo: Sahand Babali Lucia: The conversation generally centers around supply, discussing lead times and costs. We have seen lead times stabilize across almost all commodity types, including passives, semiconductors, and PCBs. In some cases, when we narrow it down to specific components like resistors or EPROMs, lead times have even come down compared to the peak levels seen during the pandemic. However, overall lead times remain higher than pre-pandemic levels in 2019. As for pricing, while supply constraints have eased in some areas, pricing has remained relatively stable and, in some cases, has increased slightly. Considering the inflationary environment we are in, with rising energy costs and metal prices, this pricing trend is somewhat expected. So, there is no immediate relief in terms of pricing, especially in industries like aerospace and medical, where pricing remains stable or slightly increasing. Stoten : Moving to the topic of technology, we’ve talked about the potential of AI in supply […]

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