Security Industry Seeing Minimal Supply Chain Disruption from COVID-19

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With China’s manufacturing sector recovering from the impact of the coronavirus crisis, the availability of security products has remained mostly normal.

With the coronavirus epidemic in China subsiding, the country’s battered manufacturing centers appear to be on a path to recovery. This has stakeholders across the global technology supply chain breathing a collective sigh of relief. In particular, the electronic security industry has so far escaped relatively unscathed despite fears of a catastrophic impact to the supply chain.

As the United States and other nations confront the escalating coronavirus crisis, security manufacturers, integrators and other industry professionals SSI spoke with for this story remain wary of increasing uncertainty.

Nonetheless, they describe successful strategizing to counteract what supply chain disruptions they have encountered during the first four months of 2020. Security industry veteran Kirk MacDowell, founder and CEO of consultation firm MacGuard Security Advisors, says in his near 40-year career he has witnessed multiple supply chain disruptions, but none that threatened on a global scale.

“Past issues have been regional, such as a fire in a factory or Chinese employees not returning back to work following the extended Chinese New Year holiday, to name a couple,” he recalls. “The current global pandemic could, in fact, hinder U.S. companies by preventing finished goods made in China from arriving stateside in a timely fashion. Additionally, companies that assemble products here in North America may be impacted by component shortages coming from China.”

As of late March, MacDowell says he has seen little disruption to the supply chain as most manufacturers have months of supply on hand at any given time. “Many manufacturers have a primary and secondary source, and some have — even in advance of this crisis — set up suppliers outside of China to mitigate previous tariff issues imposed by the U.S. government in 2019,” MacDowell, a member of SSI’s Editorial Advisory Board, explains.

A tightening of manufactured parts and components could still emerge if the pandemic were to continue. However, China declared on March 10 that the spread of the COVID-19 disease had been “basically curbed” in Hubei province and Wuhan. If China is indeed emerging from its iron-fist measures to halt the spread of the disease and resuming largescale manufacturing, “expect the supply chain to normalize somewhat in the coming months,” MacDowell says.

Manufacturers, Integrators Modify Plans

Bill Bozeman, CEO of PSA Security Network, a global systems integrator cooperative, explains his initial concern at the onset of the crisis in China centered on the availability of raw materials used in the manufacture of security products, as well as any goods that had to be transported out of the impacted areas. The fast-rising increase in confirmed COVID-19 cases coinciding with the start of Chinese New Year only elevated immediate fears among the systems integration community.

“We started gathering information as quickly as we possibly could to see where and what was going to be impacted in our industry. We were thankful to hear that many who receive raw materials or finished goods out of impacted areas had already planned ahead for additional inventory, as most companies do, prior to Chinese New Year,” Bozeman says. “There have still been some delays, but it has mostly been a minor impact.”

Tech manufacturing behemoth Foxconn, which serves as Apple’s top assembler and part supplier for iPhones, recently announced it expects production levels at its plants in mainland China to return to normal seasonal level by the end of March. San Jose, Calif.-based Qolsys, which contracts with the firm to assemble its alarm and automation touchscreen panels, is cautiously optimistic its supply chain will continue mostly uninterrupted.

“We got lucky closing 2019, as we prepared for an earlier than usual Chinese New Year, we were already working with Foxconn and our customers to order ahead,” explains Mike Hackett, senior vice president of sales and marketing. “As the coronavirus situation escalated exiting Chinese New Year, we were already working with Foxconn and many suppliers directly to identify employee readiness, long lead time components, production capacity and priorities.”

Throughout Southeast Asia, factories have been subject to strict nationwide controls as tens of millions of people have had their movements, travel and daily life restricted to staunch infections of COVID-19. All this could portend minor production delays well into April, but Hackett does not currently expect any significant downtime in terms of long-term supply. The supply chain could fully stabilize after June, he suggests.

“Right now, our main concern is short-term supply as we wait to hear feedback from our partners in China and the other 10 to 15 countries we source from.  We know Malaysia recently announced a country-wide shutdown, severely impacting the availability of product from that country,” Hackett explains. “Fortunately, we do not source any components from Malaysia, yet this is an example of how we are following the coronavirus and its potential effect on the global supply chain.”

Iris ID of Cranbury, N.J., a manufacturer of contactless biometric systems, gets most of its components from South Korea and so far has not experienced a major disruption to its supply chain despite that country being hard hit by the disease.

“We’re doing OK, but everyone is closely watching what’s happening in China. The spread of COVID-19 seems to be slowing there. That’s good as I’ve read 90% of the world’s component supplies come from China,” says Mohammed Murad, vice president, global sales and business development. “If the problems in China do continue for weeks or months to come, we may see major global economic problems.”

Murad cautions that should the pandemic continue for an extended period, his company would likely suffer some delays, as will virtually every security products manufacturer.

“The global impact of the coronavirus pandemic will grow as current in-house supplies are exhausted. It may result in end-user organizations postponing security projects and conferences,” he continues. “That will impact integrators, especially the smaller firms. We hope that won’t result in layoffs.”

Matthew Ladd, president and CEO of The Protection Bureau, a systems integrator based in in Exton, Pa., reports not seeing any major limitations on the ability to get products and support services. Ladd says his manufacturing and distribution partners have been doing a good job providing him with status updates from the onset of the coronavirus outbreaks.

“Obviously things could change, and we are concerned, but have not taken any drastic changes. We have seen a slowdown in our ability to fulfill for our clients, since they are closing down access,” he continues. “This being the case, we are not in a product shortage. However, when things improve, we do feel there will be a huge push by clients to get systems installed that were delayed. If and when this happens, we could see a shortage.”

Foremost in mind for Ladd at this juncture is the well-being of his company’s employees. “The biggest concern we have now is keeping our people safe and have put in measures for them to stay safe. The decrease in production is our biggest concern to keep our people busy and not have to cut back hours or implement layoffs.”

DMP manufacturers intrusion, fire, access control, network and cellular communication products from its headquarters in Springfield, Mo. Mark Hillenburg, vice president of marketing, says the company utilizes U.S. and global components, and while not currently experiencing any supply chain issues, “we are working it very hard every day.”

DMP has reduced component purchases from China the past few years and has especially concentrated on finding other global suppliers since the Trump administration began levying tariffs. DMP’s business plan is to maintain six to eight weeks inventory of finished goods and raw materials in Springfield. Half of all materials used in DMP products are sourced directly in the U.S. with distributor and direct global partners from a variety of countries worldwide. That generally allows for three to four months of product in stock at any given time.

“Recently we have ramped that up. Even with the spike in demand — and an incredibly strong first quarter — we are out-producing our demand and putting more inventory on the shelf,” Hillenburg says.

Still, with the U.S. straining to respond to the spread of the COVID-19 disease and preparing for a prolonged response, the specter of extended channel disruption looms. Yet to be determined is how companies across the security ecosystem will be affected should organizations and homeowners stop allowing service people into places of business and homes. How long such a scenario protracts could be the make-or-break difference for most companies, Hillenburg says.

“I would not have predicted that we would get to this point — closed schools and restaurants, shelter-in-place orders — so who knows where it will end,” he says. “I’m concerned that the cure might be worse than the illness, if we put millions of people out of jobs and businesses go bankrupt. But we are concerned, vigilant and working hard to stay ready for whatever comes our way.”

Speco Technologies President Todd Keller tells SSI the company’s facility in Amityville, N.Y., has implemented new strategies that allow it to remain operational during the crisis. The majority of the company’s employees are now working remotely while still taking customer orders and providing technical support. Although the industry has definitely been adversely impacted by the coronavirus upheaval, Keller says, what matters most for everyone, be it a manufacturer, distributor or installer, it all boils down to the end user.

“If there is a disruption in regard to the end user purchasing the products, it affects us all. Which unfortunately due to our current climate there is a disruption, but like any issue once the situation gets resolved operations and business will bounce back and return to normalcy,” he says. “It’s just a matter of time.”

Keeping Communication Lines Open

Some manufacturers are proactively reaching out to their channel partners and alerting them to issues they are experiencing, along with providing updates on how they are actively managing any impacted product lines. Among a list of bullet points explaining its response to supply chain disruption, a Nortek Fire & Security email to its partners stated, “We are closely planning with key suppliers and partners as this will likely affect logistics, including container availability, driver availability, and port congestion.”

Liberty Lake, Wash.-based OpenEye, a provider of Cloud-managed video solutions, notified its channel partners it would be implementing hardware revisions — including video outputs and USB ports — to three select recorders in order to maintain product availability. In an email the company stated, “The hardware being used for these revisions is already in widespread use by other systems sold by OpenEye and system images are already compatible with the updated hardware.”

In areas where shelter-in-place orders are being directed, some companies are shutting down their business altogether. One such security manufacturer is Keri Systems, an access control provider located near the San Francisco Bay Area in Santa Clara County. On March 16, six neighboring counties announced a shelter-in-place order for at least three weeks to curtail the spread of COVID-19.

“During this period Keri’s offices will remain closed and shipments will be halted. We will still be able to process orders and provide phone support as before. We are also investigating the establishment of a temporary shipping location roughly 100 miles east of the heavily affected counties,” the company posted on its website.

Despite supply side conditions recovering as factories in China begin to improve output once again, marketers need only look to the end of the chain — to end-user demand — and wonder what the near-term holds as COVID-19 battles continue to be fought across the U.S. and elsewhere around the globe. The uncertainty is driving vigilance across the security industry and beyond.

Fredrik Nilsson, vice president of the Americas for Axis Communications, explains the network camera leader is proactively working with its supply chain partners, and while they’ve seen minimal impact, for the most part Axis is operating normally.

“With regard to the coronavirus,” Nilsson continues, “every day presents a level of unpredictability and the possibility of change, which makes it difficult to speculate what the future might hold.”