Introduction
In 2024 and beyond, the consumer electronics and appliance manufacturing industry faces a host of challenges that are keeping everyone on their toes. Supply chain disruptions continue to pose significant challenges, with semiconductor shortages causing widespread production delays. Economic uncertainties, like inflation and recession fears, are squeezing consumer wallets and company profits alike. On top of that, the push for sustainability is stronger than ever, with new regulations on e-waste reminding us that even our gadgets need to be green.
Technology is advancing at lightning speed, and companies must keep up with innovations in 5G, AI, and IoT, all while fending off cyber threats. And let’s not forget the growing "right to repair" movement, where consumers are demanding the power to fix their own devices without a degree in rocket science. Geopolitical tensions, labor issues, and intense competition add even more complexity to the mix.
Here's an illustration to summarise the key challenges / moments in the consumer electronics and appliance manufacturing industry.
Navigating these challenges will require a blend of strategic agility, a dash of sustainability, and a keen eye on what consumers really want.
Learn more about the application of Access-Based Business model as a solution to some of the key challenges faced by the consumer electronics and appliance manufacturing industry in this article about: Access-Based Business Models: More Relevant Than Ever Thanks to the EU's Right to Repair Law.
It's All About Trust
According to the 2022 Consumer Products Industry Outlook Research by Deloitte, 9 out of 10 executives reported supply chain challenges as the biggest threat to growth. In addition, 6 out of 10 executives said issues with finding labor and increasing inflation as challenges they are already facing. Overcoming these challenges is becoming imperative not only in 2022 but in years to come, at least from the business owners' point of view.
From their customers' point of view, things may look a bit different as their primary challenge revolves around one thing. Trust.
Trusting has always been hard, and knowing who to trust is even harder. It is the basis of every meaningful relationship, personal and business. In business, trust is developed through highly competent actions with the right intent for all involved parties. These actions then lead to increased reliability, transparency, and humanity.
Having this in mind and combining it with the aforementioned challenges that the consumer electronics industry is facing, it becomes obvious where most consumer electronics companies are standing today:
- Disruptions in the consumer electronics supply chain cause stockouts, which break the perception of reliable availability and damage the perception of both retailers and consumer electronics companies.
- Issues caused by labor shortages harm production and, in some cases, service quality which further impacts the perceived ability of companies to deliver as promised.
- Inflation that is increasing beyond what is seen as "normal" is breaking the promise of a fair deal.
If these challenges were not enough, factors such as shipping delays, greenwashing, lack of personalisation, and a general loss of trust in businesses are enough for consumer electronics businesses to focus on building trust with their customers.
As seen in the image above, there are many challenges that consumer electronics companies need to address if they want to win the battle for their customers' trust.
Challenge #1: Consumer Electronics Supply Chain Disruption
Although the Covid-19 pandemic has significantly contributed to the instability of consumer electronics supply chains, it is still one of the reasons behind it. In fact, Covid-19 just exacerbated existing issues with the supply chain.
Because of its over dependence on outsourcing, distant manufacturing, and reduced number of suppliers, consumer electronics supply chains have been experiencing difficulties for some time. The pandemic just brought these issues to the surface.
Although there was evidence that the disruption caused by the pandemic has started to slow down and return to normal, with new developments such as the Russian invasion of Ukraine and the geopolitical situation in the whole world, it is expected that the disruption of consumer electronics supply chains will continue in the years to come.
Demand for consumer electronics continues to outweigh supply, putting additional pressure on already pressured manufacturers.
Additionally, the switch to a hybrid way of working where more and more people are working from home has caused an increased demand for both business and consumer electronics.
According to the survey above conducted by Deloitte, 90% of business executives reported that their companies were facing significant problems with their consumer electronics supply chain.
Issues they were reporting mainly were around securing products, getting them to market, and keeping enough of them in stock. And although some companies have managed to find a workaround, most say that the problem with their supply chains will extend through the entire 2022 and will likely continue in the coming years.
Challenge #2: Labor shortages and the future of work
Concurrent consumer electronics supply chain issues worsen the problem, including workforce shortages and the backlog of shipping containers worldwide.
For example, on February 2022, the Los Angeles and Long Beach ports, which some report are responsible for most delays, had 101 ships waiting to unload compared to only 40 on the same day year before.
With labor shortages that significantly affect product quality and timely deliveries, the consumer electronics industry is facing yet another problem related to the workforce. New technologies, sources of talent, and recent events, such as the pandemic, have changed and continue to change the very nature of work.
More and more employees are switching to non-traditional forms of employment. They decide to retire early, start their own business, or simply choose to take a break from work.
This leads businesses across industries struggling to meet customer demand.
This unprecedented labor shortage, often called the Great Attrition, has led companies to act quickly. Most consumer electronics companies are already taking action to combat the problem. Companies are trying to create a more attractive, engaging, and sustainable work environment to turn the Great Attrition into the Great Attraction.
And although some of them are successful, the challenge of labor shortage has already taken its toll as wages continue to rise and inflation continues to spin out of control.
If these issues persist in the long-term, they will undoubtedly hurt GDP growth, deepen an already deep recession, and cripple any future expansion plans in the whole sector.
Challenge #3: Rising inflation in unpredictable times
What goes up must come down. While the prices will have to go down at some point, there is currently no sign of when that will happen. What consumer electronics companies realize now more than ever is the difference between gross profit and gross margin.
Raising prices increases revenue and shows that the company is growing but that growth makes little sense when companies increase their costs without keeping a close eye on their gross margin. This growth is artificial and makes companies less profitable which, in turn, destroys shareholder value.
It is safe to say that inflation has become our reality, and consumer electronics companies that have been disciplined in capturing cost increases and passing them on to their customers will have to find a way around this challenge.
One of the best ways for consumer electronics companies to overcome this challenge and maintain the profit margin is to strengthen their relationship with customers and increase their trust by showing them that they care and that they are willing to go the extra mile by offering services that ease the burden their customers have from facing the same challenge.
Challenge #4: Sustainability and Regulatory Compliance
The consumer electronics industry faces a pressing challenge in sustainability and regulatory compliance as global demand for greener practices grows and governments implement stricter environmental regulations. The push towards sustainability involves reducing carbon footprints, minimising electronic waste (e-waste), and ensuring ethical supply chain practices.
Sustainability Initiatives
Consumer electronics companies are increasingly under scrutiny to adopt sustainable practices throughout their operations. This includes:
- Product Design: Developing products that are energy-efficient, durable, and easier to repair to extend their lifespan.
- Material Sourcing: Ensuring responsible sourcing of raw materials, including conflict-free minerals and sustainable packaging.
- Recycling Programs: Implementing effective recycling programs to reduce the environmental impact of discarded electronics.
Regulatory Compliance
Governments worldwide are tightening regulations on electronic waste management and product recycling. Challenges include:
- E-Waste Regulations: Compliance with laws requiring manufacturers to take responsibility for the end-of-life disposal of their products.
- Energy Efficiency Standards: Meeting stringent energy efficiency standards set by regulatory bodies.
- Extended Producer Responsibility (EPR): Fulfilling obligations under EPR schemes, which require manufacturers to finance and manage the recycling of their products.
Industry Response
In response to these challenges, consumer electronics companies are:
- Investing in R&D: Innovating towards more sustainable materials and manufacturing processes.
- Collaborating Across the Supply Chain: Working with suppliers and partners to ensure sustainable practices are upheld.
- Educating Consumers: Raising awareness among consumers about the importance of recycling and sustainable product choices.
Circular Business Model: The Future of the Consumer Electronics Industry
It goes without saying that electronics have transformed the way of working and living. And it will continue to do so because today's global consumer electronics market is valued at an estimated US$1 trillion. Various projections say that it will continue to grow despite the above mentioned challenges.
As the world population continues to grow and welfare continues to increase, consumption of natural resources is also increasing. This increases the pressure on both our resources and the environment.
A well-known economist Kenneth Boulding once said: "Anyone who thinks that they can have infinite growth on a planet with finite resources is either a madman or an economist."
Similarly, in its 1972 famous report "Limits to growth," the Club of Rome confirmed Boulding's words that our resources are limited. Still, it also offered some suggestions on developing ways to live inside the boundaries of those limitations.
One of the essential steps to "overcome" those limitations is to switch our economic activities from the linear economy model to a circular economy model. And while circular economy activities in the consumer electronics industry focus mainly on logistics, recycling, and energy efficiency in the production and design phase, one emerging activity that offers great potential is a leasing or subscription business model.
The Necessity of an Access-Based Business Model
With the subscription-based business model, consumer electronics companies offer their products or devices as a service. Although still in its infancy, device-as-a-service or product-as-a-service, in general, is quickly gaining foothold because of how well it solves some of the challenges faced by the consumer electronics industry. This innovative business model indeed builds trust between companies and customers.
In a device-as-a-service model, the customer does not become an owner of the product but uses it as a paid service, enabling them to use the device without having to worry about device management.
When done properly, DaaS business model deepens the relationship between the customer and the device provider and increases trust. On the other hand, it simplifies the consumer electronics supply chain. It offers new revenue opportunities by lowering warranty and sourcing costs as devices can be redeployed after the initial device as a service subscription period has ended.
Aside from the customer and business benefits, there are benefits for the environment since the device as a service business model is based on the fact that device are refurbished and redeployed again, which reduces the amount of electronic waste and saves resources and energy.
About circuly
circuly is a subscription management software solution that enables manufacturers and retails of consumer durable products to launch, manage and scale a rental, lease or subscription model for physical products. With the help of the circuly solution, retailers and manufacturers of consumer durable products can make their business circular, add a recurring revenue stream, extend the product lifecycle, reach new customer segments and achieve their sustainability goals. circuly makes the process of renting products online as seamless and scalable as traditional sales, revolutionising the way businesses operate in the digital landscape.
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