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Hard Times for Hardware?

Aug. 28, 2019
Global agility around tariffs, sustainability and traceability are top of mind, says survey.

Traceability. Agility. Sustainability. Cause for concern around these three elements of manufacturing and supply chain management started appearing in the 2018 State of Hardware Report from Fictiv, an on-demand manufacturing software firm, and have only become more prevalent since. In the last year alone, these concerns have become all too common. 

In the 2019 edition of the report, 62% of 711 respondents in manufacturing leadership noted that new tariffs have negatively impacted their businesses. As this year starts to come to a close, how will traceability, agility, and sustainability have an effect on supply chains? 

A Call for Responsibility

With consumers having more and more insight into product development, it’s no surprise that there’s a growing focus and desire for sustainability. In the coming year, hardware developers will start to see an even bigger desire for responsible labor practices, design for product end-of-life, sustainable material use, and transparency throughout their supply chain.

Google is already making a shift into sustainability by aiming to have all hardware products include recycled materials by 2022. Between 2017 and 2018, the company also reported that shipping emissions were cut by 40%. Adidas is also focusing heavily on sustainability during production. Their upcoming product, called FutureCraft.Loop, is a 100% recyclable shoe that’s designed to be returned to Adidas, melted down, and fully reused to make a new pair of shoes. 

As 2020 rapidly approaches, product developers will likely start to ask questions about product end-of-life and recyclability, especially around material sourcing. 

Shifting to Agile, Global Product Development

Growing tensions in the global trade war have introduced significant new barriers for product developers to overcome in order to procure manufactured parts for prototyping or production. Agility has become an important piece of the puzzle as teams try to figure out ways to mitigate risks involved with international logistics. Data from the 2019 Stage of Hardware report shows that 66% of respondents were forced to change business operations as a result of tariffs on global trade. 

It’s likely that hardware developers will start to implement more in-depth “tariff engineering” strategies over the next year to avoid rising costs. Tariff engineering isn’t new - historically, there have been a number of famous examples. 

In 1912, Bernard Citroen imported pearls into the United States and, to avoid higher tariff costs, unstrung them from the necklace they were to be part of so they wouldn’t be classified as jewelry. Instead of being charged a 60% duty on jewelry, the pearls were ultimately classified as “in their natural state, not strung or set” and were dutiable at 10%. 

This example is one that contemporary hardware developers will turn to when thinking about ways to legitimately restructure or reclassify goods as they travel globally through customs. Though it will require assistance and research ahead of time, often it’s worth the cost. As one State of Hardware respondent noted, they will need to start to “pay closer attention to what state of completeness products are shipped at,” as it may make more sense to classify at a lower tariff and assemble the final product in the US. 

Magnifying the ‘Where’ and ‘What’

Traceability is also a question that both producers and consumers must start to think about more in the coming months. 

As supply chains continue to grow globally and become more versatile, that also leaves space for risk. 43% of the 2019 State of Hardware respondents noted that they don’t feel they have the proper resources to manage a supply chain, which ultimately may lead to less oversight of material sourcing. 

Jeff Wilson, a Senior Business Development Manager at NSF International, says one possible solution for improving traceability in manufacturing is to change the model. “Most brands and retailers know very little about their suppliers outside of their finished goods manufacturers,” Wilson says. Moving away from a traditional “chain”, he says, could help in many ways, including improving quality, increase speed and flexibility during development, and creating more trust with consumers. New approaches for providing transparency and traceability are also being tested. Ledger-based blockchain solutions for manufacturing supply chains will soon become an emerging trend.  

The future of manufacturing is constantly changing, but the growing focus on agility, sustainability, and traceability certainly won’t slow in the next year. Hardware developers will continue to dig into these topics and make a concerted effort to improve relationships with manufacturers and consumers alike.

Dave Evans is co-founder & CEO of Fictiv, a virtual contract manufacturing platform transforming how teams design, develop, and deliver the next generation of hardware products. Prior to Fictiv, Dave was the first hire at Ford’s Silicon Valley Lab. Dave graduated from Stanford University with a degree in mechanical engineering. 

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