The impact of COVID-19 on the world’s economy and throughout numerous industries over the past year and a half is still unfolding. From the cost of food and lumber, to the paralyzed restaurant and airline industries, COVID has packed a punch. More recently, we are seeing the disruptions in the electronics supply chain that is affecting the ability of OEMs to get finished product to market.
ACDi discussed the state of the electronics supply chain and the record shortages the industry is experiencing with its Materials Manager, Lenny Sjoberg. Here’s a glimpse into that conversation.
Q: Can you summarize 2020 and the supply chain issues?
A: Most of the supply chain issues stem from the impact of Covid-19. Quite a few of the fabricators have reduced their capacity due to the reduced demand during the pandemic. They were not prepared for the sudden increase in demand that has occurred over the last six months.
Q: What are the top three challenges in the electronics supply chain in 2021?
A: Sourcing any material is now a challenge. Manufacturers are imposing NCNR terms on customers in an attempt to reduce the amount of double ordering. We have to be sure that what we place will meet requirements when those orders become available.
Q: What is the primary contributor to the shortage of electronic components?
A: Two factors: the tremendous uptick in demand and the lagging capacity to produce.
Q: As a supplier to the electronics manufacturing services industry, what advice would you give to EMS providers and their OEM clients about mitigating risk in the supply chain?
A: Forecast your requirement, engage with distribution to cover those requirements with either hard orders or bonded stock. Hopefully, you’ve established a history of using those key components as this will help you when allocation becomes an issue.
Q: Have you seen any reduction in quality, as a result of material shortages?
A: Quality hasn’t been an issue. However, we’ve seen a constant flood of slipping deliveries, which has proven to be a challenge when trying to schedule our manufacturing floor.
Q: Has your company invested in technologies or processes in the past year to minimize supply chain disruptions? If so, are there any examples you can share?
A: We invested in CalcuQuote and ShopCQ that allows us to source vendors faster so we can create POs as quickly as we source materials before that stock disappears.
Q: What are some sourcing strategies that EMS providers should consider with today’s supply chain challenges?
A: First, have a qualified pool of brokers available to source both obsolete and allocated material. Secondly, while not technically a sourcing strategy, as a country we need to return production of electronics components to U.S. soil.
Q: What can OEMs do to help minimize supply chain issues/disruptions?
A: Don’t leave the planning of material requirements until you start production. An OEM needs to establish the supply pipeline for their key components well before they go to pre-production. ACDi has a system in place that helps our qualified customers and prospects to drive material purchasing in order to mitigate long lead times.
Q: Are there any particular components or groups of components that are being affected?
A: The impact is fairly broad-based, but the hardest parts to mitigate are semiconductors. Passives usually have multitudes of sources that can source within normal distribution or the grey market.
Q: Do you anticipate the shortage to worsen?
A: I don’t think we’ve hit bottom yet. Manufacturers are still reluctant to put more capacity on-line. Their experience has been that once supply increases, a lot of the demand will disappear. The demand that disappears was a result of customer’s double-booking material orders in a shotgun approach to try and meet their requirements.
Q: Do you have any insight as to when the supply chain will return to normal?
A: I do not. Some predictions I’ve heard in the industry say well into 2022. But I will say that the sooner the impositions on the economy are removed, the more able the market system will be able to respond to valid economic signals.
Q: How have the shortages affected cost?
A: Most manufacturers are imposing increases to their price structure. These manufacturer-induced price increases are not about shortages, but more about the inflationary cost of production. The greatest cost increase we are seeing is in spot shortages, which only the grey market firms can supply. It is there that we see prices sometimes 10x the material normal distribution price.
If you need help procuring material and getting your electronics assembly to market, reach out to ACDi to discuss how we can help with creative sourcing strategies.