Pricing and order lead times are causing headaches for electronics buyers this year as several economic and industry factors are impacting these two vital purchasing criteria. On the pricing side, buyers are anticipating some price breaks from electronic component manufacturing and/or suppliers, but those breaks aren’t necessarily happening across the board at this point. Higher raw materials costs, backlogs and rising labor costs are in many cases making it difficult for EMSs to justify price cuts.
“There was a steep drop in global semiconductor manufacturing last year, but equipment demand started to go up a bit during the first quarter of 2024,” says Denise Lingenfelter, global corporate accounts senior director at DigiKey. “That will probably gain momentum this year and, in turn, cause prices to rise and lead times to be extended.”
Harnessing the Power of Technology
Lingenfelter says the surge in artificial intelligence (AI) technology is driving higher demand for certain products. This may also lead to higher prices and longer lead times, which can be difficult to pinpoint because they vary so much right now across product categories. “Some lead times will be up, and some will be down, all while the rest of the buyers work to find the best possible price,” she adds.
Continued supply chain disruption is also having an impact on the industrial electronics market this year. Geopolitical tensions in the Red Sea and the Panama Canal, wars in the Middle East and Ukraine, and tragic events like the Baltimore Key Bridge collapse can all directly or indirectly impact global supply chains.
To navigate these and other issues, electronics buyers are forming more long-term relationships with their preferred partners. The stronger those bonds are, the better positioned a buyer will be to future-proof their own company’s supply chains, develop mutual roadmaps for processes and the technologies, and gain a deeper understanding of each partner’s ecosystem.
“As new designs and technologies are introduced, avoiding some of the challenges of the past allocation cycles requires that companies work together with their partners,” Lingenfelter says, who advises to expand the bill of materials (BOMs), have multiple sources on all designs and brace for more mergers and acquisitions in the manufacturing space.
Buyers should also stay on top of product obsolescence at a time when technology is advancing so quickly. “The faster technology changes, the faster products will reach end of life,” Lingenfelter cautions. “Oftentimes there will be little to no warning as to when that is going to happen.”
Procurement teams should be aware of that reality and be prepared to act quickly if—and when—a critical component or part reaches end of life. A strong distributor partner can play an important role in this process. “Companies should be working with their partners, nurture those relationships and work together to future-proof their BOMs and supply chains,” Lingenfelter advises.
Here are four more tips buyers can use to get out in front of some of the core challenges that they’re facing this year:
- Watch for potential disruptions. Don’t lose sight of the potential supply chain disruptions that may be lurking around the next corner. Pay attention to geopolitics and cybersecurity, both of which can have a profound impact on product pricing, availability and other variables.
- Keep up to date on emerging and future technologies. Stay on top of developments like AI and generative AI, as well as trends like 5G connectivity. “Gain as much knowledge as you can,” Lingenfelter says. “Make sure you are expanding your approved manufacturer lists (AMLs) to include companies that are involved with those types of innovations.”
- Adopt a long-term view. As technology changes, a committed inventory strategy is going to become even more critical to an electronics buyer’s success. Avoid the short-sighted “need that best price today” approach and instead think long-term. Then, nurture the supplier relationships that will help you achieve your goals in a win-win scenario.
- Be mindful of sustainability and ESG. Buyers need to be mindful of what’s happening with sustainability because their customers are asking for more support in this area. These customers want to use product designs and materials that are green, and smart buyers are putting an extra effort into this area.
