We will also continue to strengthen our systems and processes in order to build a global supply chain which balances high efficiency with market leading customer responsiveness.
Executive Vice President Global
Manufacturing & Operations
Review of our year
As our business has grown from a specialist distributor to designer/manufacturer our supply chain has naturally become more complex. We now have manufacturing facilities in China, Vietnam and the USA.
We have just completed the construction of the second manufacturing facility in Vietnam which is adjacent to our existing Vietnam facility. This conservatively adds an additional $130 million of end revenue capacity, bringing the combined capacity of our Asia manufacturing footprint to $300 million.
Vietnam has proved a good location for the Group. The performance of Vietnam has been excellent and the additional capacity enables significant advantages to the manufacturing supply chain. Having two plants helps to mitigate the growing pressures from the tariffs imposed on Chinese manufacturing products into the USA. In addition to the increased capacity, strategic investment in new capital equipment significantly improves the robustness of the supply chain by improving our Business Continuity Planning.
By Q2 2019, both facilities will have very similar capabilities, therefore allowing capacities to be evenly distributed within Asia manufacturing. This has the added advantage of being able to flex capacity, maintain lead times and deliver performance during unpredictable demand spikes.
Despite the implications of US tariffs, we will continue to operate in Kunshan, China where we have been building the high power more complex products. We have a strong technical workforce in that facility, many of whom have long service with the Group and extensive power converter knowledge.
During the first half of 2018 we started to see significant tightening of the supply chain for electronic components which resulted in dramatically increased lead times and component cost inflation. We went into the market to secure supplies of critical components at prices beyond our standard costs in order to meet our lead times to our customers and ensure we could continue to ship. Lead times for certain components increased dramatically, in some cases lead times moved from 12 to 52 weeks. The result of these lead time extensions has meant we have had to significantly increase our safety inventories. The extra prices we had to pay for components were a drag on gross margins in the second half of 2018. Recently the supply of certain components such as multi-layer ceramic capacitors and chip type resistors has started to improve but many of the active power semiconductor devices we use remain on long lead times.
Supply chain strategy
Over the years we have built an enviable brand in the power solutions market. Our product portfolio, excellent customer service and successful execution of our strategy has led to consistent growth in market share. In particular, growth in the past two years has been extremely strong which has tested the agility of our supply chain and manufacturing operations. While they have been able to cope with this growth profile it is clear that we need to upgrade our systems and processes in order to be able to scale and run a much larger company. We have embarked on a project to make SAP S/4HANA our ERP system across the Group, replacing our existing manufacturing systems. This will bring great benefits to the Group and manufacturing operations in particular.
The recent strategic acquisitions have expanded our product offering. This also allows consolidation and leveraging of the supply chain. We are in a very strong position to leverage these supply chain synergies, improving operational flexibility, delivery, quality and cost objectives.
We will also continue to strengthen our systems and processes in order to build a global supply chain which balances high efficiency with market-leading customer responsiveness.