Issue link: https://iconnect007.uberflip.com/i/1265351
20 SMT007 MAGAZINE I JULY 2020 supply shock, but it evolved into much more than a supply shock and became a demand shock as well. Companies and manufactur- ers are looking at all of those dynamics and how to optimize the factors. Some of the fac- tors that manufacturers are optimizing have started to evolve and change as a result. For example, safety is much higher on every- one's list today than it was six months ago. Companies are adding that as one of their risk factors. To your point about regionalization, some of these things were already in flux, and manu- facturers were already looking at how to reopti- mize their supply chain. They're continuing to have that conversation, and they're looking at what their regional strategies are. Companies will take all of this new experience and infor- mation into account and, in some instances, make changes. Notably, we see that manufac- turers are starting to dedicate certain product lines to specific regions so that if the region is disrupted for any reason, then that entire product line will go down, but not every prod- uct line will go down. Whereas the way sup- ply chains are globally distributed now, a dis- ruption in any part of the world can have the potential to disrupt all of your supply chains throughout the world. To create some protec- tion against those disruptions, you'll see man- ufacturers containing the entire manufactur- ing supply chain for given products within a region where possible. Manufacturers were already looking at how to guard against some of these risks. The idea of dual sourcing is a way of guarding against some of these risks, but it is more difficult to do in practice than in theory. Another way of guarding against some of these shocks and risks is that you then dedicate and identify a specific region to be the sole manufacturer of a whole product line. Matt Kelly: To build on that, I'd like to start with pre-COVID and get back to the tariff challenges. One thing to know is that the transformation of the supply chain, as we know it today, started from these tariffs. There are large OEM compa- nies that were, when you work out the 25+% tariff on their products, spending single-digit millions—or more—inside of six months. This is a very large tax and erodes profit margin for the product line. I have lived through the tariff transfer, which started around 2017–2019. Many products were being moved out of Asia into Mexico, for exam- ple. By the time last year rolled around, many large OEMs were already there. The migration that Shawn described happened quite a bit in commercial-grade computing and high-reli- ability electronics. They had already moved. That's from the EMS perspective, where the system is put together. There is an opportunity, and some of that's already occurred, where the geography and location have already moved. For regionalization, it makes sense that you want to be close to a hub. However, the counter to this is you have to frame it with what we're making. Supply chains are not all alike. For example, you can't pick up the switching costs on your incoming material supply. That may not be an option. The example I like to give is a silicon fab. TSMC recently announced it was building a Shawn DuBravac