A 6-Point Plan to Avoid 5G Supply Chain Meltdown

The COVID-19 pandemic has highlighted existing cracks in the 5G supply chain. Large telcos have been pressuring 5G manufacturers to diversify from China, resulting in large-scale changes to supply chains. COVID-19 caused more than three months of production delays in China. The virus is still not under control, impacting assembly facilities in Mexico and component suppliers in Southeast Asia.

With most people working and learning from home because of COVID-19, there is additional strain on networks. According to the latest Ericsson Mobility Report¹, nine out of 10 consumers surveyed increased their internet use during pandemic lockdowns. One-fifth of global users participated in new online activities, such as conferencing.

The need for 5G is real, and supply chain issues — including the movement to boycott Huawei and ZTE — could hamper its global rollout. The Federal Communications Commission (FCC) in the U.S. designated Huawei and ZTE as national security threats² in June 2020. Even for countries that have not relied on Chinese suppliers — including the U.S. and parts of Europe — the global movement away from Chinese 5G manufacturers is challenging. As more and more countries compete for gear from the same small group of manufacturers, the pressure builds. It is already a race to build 5G networks, and equipment unavailability creates bottlenecks.

It’s not just traditional telecom companies getting into the 5G arena, either. Heavy equipment manufacturer John Deere wants 5G to cover “every ear of corn and stalk of soybean,”³ and the company recently won an FCC Citizens Broadband Radio Service (CBRS) auction to deploy 5G in its manufacturing facilities.⁴ As non-traditional companies enter the 5G fray, they will compete for limited equipment. That adds another layer of supply chain complexity.

How can supply chain professionals respond? Here’s a six-point checklist to stabilize your 5G supply chain:

1. Collaborate, Don’t Dictate

Develop a long-term strategy, share it with your key manufacturers and seek their input. If manufacturers have a heads-up on your equipment needs, they’ll be able to suggest solutions to better meet demand and create resilience.

Also, jointly evaluate strategies where assembly and components are sourced across global regions. While this option may slightly increase costs, the resulting resilience and flexibility will likely outweigh such costs in the long run.

Establish capacity and contingency plans using the newly defined strategies so that your organization can pivot quickly when the next disruption happens.

2. Understand Your Suppliers’ Suppliers

Component shortages cause bottlenecks in 5G deliveries. Dig deep to improve your knowledge about your suppliers’ suppliers.

Implement quarterly three-way planning sessions (buyer, component manufacturer and supplier) to jointly plan capacity, understand constraints and address issues. Work with your manufacturers to expand approved vendor lists (AVLs) by making this a dimension to evaluate their success.

3. Evaluate New Market Entrants

Prepare for new suppliers to emerge as the market heats up. Given the long lead time for approval to roll out 5G, you must invest energy early so your organization can benefit when new supply comes to market.

Ongoing concerns about China provide ample market opportunity. In fact, demand will dictate a need for at least three more equipment suppliers as demand grows. Reliance’s Jio Platforms, India’s largest telecom operator, recently announced plans for a 5G network in the second half of 2021.⁵ It will be the first step in India’s quest to upgrade nationwide to 5G technology.

4. Advocate for Open Architecture

Closed/proprietary systems contribute to the ongoing challenges. While large parts of the ecosystem will remain closed, there is a growing movement in some spaces toward open standards such as Open Radio Access Network (O-RAN), which would provide more interoperability and increase supply flexibility.

Also, the more open the standards, the greater your enterprise’s negotiating leverage. Encourage close collaboration between technology and supply chain teams to shape the right long-term road map for your organization.

5. Adopt a ‘Realistic’ Planning Approach

Deployment planning often assumes unlimited supply and “best-case” lead times. Organizations commonly publish plans that end up unrealized because of unrealistic underlying assumptions and approaches.

Not only does this damage credibility, but it also leads to the misallocation of scarce resources such as cash, equipment and labor. Given the race to deploy, a reality-based plan drives sound decision-making and ensures appropriate trade-offs.

6. Strive for Global, Visible, Fungible Inventories

Most telecoms have more available inventory than they can leverage. There are two common challenges with this:

• A market only sees what inventory is available in its region.
• Capitalized equipment that is assigned to a project may show as unavailable — even if it hasn’t been deployed. This means another nearby project may be delayed by a shortage of that same equipment.

To address these challenges, organizations must revise processes and systems to ensure that equipment inventories are global, visible and fungible.

Recommendation: Gain Visibility Into the End-to-End Supply Chain

Disruptions such as trade wars, COVID-19, natural disasters and other issues have the 5G supply chain at the breaking point. However, there are concrete steps organizations can take to improve outcomes. Successful 5G deployments require that enterprises build resilience to better address the unexpected. Collaboration, openness and visibility are central themes for improvement.

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Mike Jette

Vice President, Telecommunications, Media & Technology (TMT) Lead, GEP

Mike is a proven leader with more than 25 years of experience in procurement, supply chain consulting and technology delivery. Mike leads the Telecommunications, Media & Technology (TMT) industry vertical at GEP. During his tenure with GEP, Mike has more than doubled GEP’s business in the TMT vertical, been cited in The New York Times and The Economist and contributed to numerous industry-specific white papers.

1. Ericsson Mobility Report,” Ericsson, November 2020 | https://www.ericsson.com/en/mobility-report

2. Ikrama Majeed Ranjha, “FCC passes formal order on Huawei, ZTE; Analysts assess Facebook ad boycott,” S&P Global Market Intelligence, 30 June 2020 | https://www.spglobal.com/marketintelligence/en/news-insights/latest-news...

3. Susan Marke, “John Deere wants 5G to cover ‘every ear of corn and stalk of soybean,’” Light Reading, 18 August 2020 | https://www.lightreading.com/5g/john-deere-wants-5g-to-cover-every-ear-o...

4. “John Deere Wins FCC CBRS Auction to Deploy 5G in Manufacturing Facilities,” John Deere, 18 November 2020 | https://www.deere.com/en/our-company/news-and-announcements/news-release...

5. Manish Singh, “Reliance’s Jio Platforms says it will roll out 5G in second half of 2021,” TechCrunch, 8 December 2020 | https://techcrunch.com/2020/12/08/reliance-jio-platforms-says-it-will-ro...