Global OEMs and the global supply chain for smart appliances

Smart devices – beyond phones and computers — are an emerging trend, as I mentioned in my previous article. More and more devices are being designed and engineered to connect to a network. Today, we can see that this includes fitness trackers, thermostats for HVAC (Heating, Ventilation and Air Conditioning) units, refrigerators, ovens and cars, to name a few. For major OEMs this trend is driving R&D into a new generation of such smart products, driven in turn by market demand, which is slowly increasing. 

Key components for smart appliances

The evolution of smart devices also demands the development of new, more functional and capable key components that enable smart devices to be smart — smart sensors, PCBs and data security are all worthy of mention here, along with highly functional touchscreen interfaces. These highly functional components are essential and as such have a direct effect on already established supply chains because they demand a new approach, new materials and expertise with thermal protection.

There are a great many components that go into the production of any smart appliance, the more visible parts such as the larger casings and physical features as well as the smaller, less visible housings for the electrical and electronic smart components themselves are all likely to fit into established supply chains with established tier 1, 2 and 3 suppliers. The essential, newer “smart” components can prove disruptive to this supply chain status quo, however.  

The supply chain and potential risks

Let’s stick with a single example and use the same one from the previous article — the touchscreen, an increasingly familiar, vital feature of any smart device, and it serves the purpose well.

As an essential smart component, touchscreens have become a relatively new addition to supply chain logistics for many, if not all, OEMs of smart devices. And yet the touchscreen itself comprises a number of highly technical components and sophisticated materials that are developed and tested in-house, but are then often outsourced to third-party sub-contractors with the prerequisite skills and experience to manufacture them cost-effectively at scale.

OEMs do not typically generate the full resources and or capacity necessary to manufacturer specialist smart components themselves. Rather they rely on specialist suppliers¹ who narrowly focus on one area, but it must be mentioned that¹ suppliers usually also have to rely on others ^{2, 3}. The advantages of this approach are that it allows for great flexibility and higher quality components featuring the very latest technology, but it also creates vulnerabilities, particularly when a tier 1 supplier (and thus the OEM) is dependent on a single supplier for a crucial material, for example. If that supplier produces the item in only one plant or one country, the disruption risks increase even more.

Moreover, production, invariably, is geographically remote from the OEM — again to ensure cost-effectiveness.

This too throws up a number of increasingly important issues — arguably the most important of which is the carbon footprint that the supply chain of smart (or otherwise) components generates from the requirement to ship them from their various geographic production locations (usually the APAC region) to the OEM (usually in Europe or the US, but also Japan and South Korea) for final assembly. This is usually to ensure IP is protected, before the finished product itself is shipped to its final market destination, which can be back in APAC. And this somewhat circuitous supply chain and distribution network, necessarily creates a considerable carbon impact that does not support sustainability goals.

Other issues include the Covid-19 pandemic, a singular event that has highlighted supply chain risks and vulnerabilities across the globe in abundance, specifically with material shortages and trade restrictions across borders, albeit mostly temporary. Trade wars, notably between China and the US, are also unpredictable and have impacted global supply chains in a fundamental way. There are many national voices advocating for manufacturers to bring more of their activities back to domestic shores to mitigate such risks and yet, the higher costs of reshoring manufacturing activities will increase the costs of smart devices, something that the majority of consumers are not likely to embrace during a global recession.

The resulting challenge, as it ever has been, is to find ways to make supply chains more resilient while maintaining any or all of their competitive advantage with these new components and their material requirements.

The final assembly of smart devices

Arguably, one of the most important processes in the manufacture of smart appliances is the final assembly, which is where all of the smart components are brought together, with their less-smart counterparts to produce the whole, saleable product. Understanding how the parts and the materials that they are composed can be functionally and reliably brought together to create a whole high quality smart appliance is critical — and understanding this at the earliest possible design phase can provide solutions for not only bonding and sealing but thermal management and PCB protection. This is where Henkel’s decades of experience in adhesives and electronics materials can be invaluable for OEMs, and indeed Tier 1 supplier of smart appliance components.

Reach out today, I would love to discuss these issues and more with anyone working in the smart appliance arena.