A challenge that reared its head in 2017 and hasn’t quit, the electronic component shortage is causing a lot of headaches among electronics buyers right now. Not expected to end anytime soon, it’s also pushing more procurement departments to find ways around the problem and come up with new ways to source their vital components.
“The industry is being told to prepare for shortages throughout 2018 and 2019 forecasts and the fallout from the shortages could last for years after this period,” procurement sourcing provider UK Electronics estimates. “Many companies that thought they could sail out the storm are now themselves struggling to navigate the supply chain as the problem is industry wide.”
Currently, UK Electronics says surface mount devices (SMD), multilayer ceramic capacitors (MLCCs), and SMD resistors are highly impacted, with semiconductor lines also being greatly affected. Key market segments driving the increase in demand include automotive, industrial, and consumer.
“The market today is extremely constrained, especially for more standard passive components such as multilayer ceramic capacitors (MLCC), resistors, transistors, diodes, and even memory,” Jabil points out in “Understanding the Current Component Shortages (and How to Survive Them).” “Many suppliers are quoting lead times over 12 months at best.”
But all is not lost. With some creative thinking and alternative sourcing strategies, some buyers are getting the components they need to build their industrial equipment, machinery, and other products. Here are five ways they’re doing it:
Getting the whole supply chain involved. Don’t just take it upon yourself to weather the storm and hope that your company comes out the other end of it in good shape. “The current conditions amplify the need to have supply chain involvement in all areas of your business, from design to pre-production all the way to end-of-life management and product delivery,” Jabil points out. “If you miss out working on any of these areas, you run the risk of having disrupted products.”
Creating lead-time agnostic supply chains. With electronic components’ lead times stretching out to a year or more, buyers should consider developing a supply chain where lead times aren’t the central focus. “You should be able to get the parts you need quickly and seamlessly,” Supply Chain Game Changer “There are many techniques that you can use without adding inventory.” For instance, buyers can work with their suppliers to differentiate order lead times from replenishment lead times. “Your facilities should be driving down the time to move goods from your docks to your production line, through your production line and out the door,” it suggests, adding that Vendor Managed Inventory (VMI) programs can help to ensure goods are held as low in the supply chain as possible, yet still be accessed quickly. “And getting rid of unnecessary buffers in your supply chain can also reduce the time required to acquire the goods you need.”
Focusing on building strong relationships. Relationships are key during a component supply shortage, when everyone is vying for a smaller slice of available products. To keep the market somewhat balanced, suppliers are turning to allocation methods. That means when supply is short of meeting demand, suppliers allocate a percentage of their output to each customer. “This means that each customer may get a percentage of the demand they have for a specific product,” Jabil notes. “The allocation process is tough on all buyers of components and requires constant contact with the suppliers to ensure receipt of components for the product they need versus the product the supplier wants to support.
Evolving their own product designs. This one has historically been out of the typical procurement professional’s immediate scope, but it’s a critical step for companies that are struggling to find the electronics components that they need to make their own products. “To stay competitive and create long-lived products, design teams need to improve their component selections—and their design skill sets in some cases—to use the parts that will be available long term,” Nolan Johnson writes in Supply Chain in Crisis. They need to pay attention to parts availability in the short term, too. “It may begin with the designers—and the designers certainly end up being held accountable to updating the design to keep the product current,” Johnson adds, “but it takes the entire supply chain being in communication to keep everyone informed and in production.”
Moving away from single-sourced parts. It sounds fundamental enough, but having multiple sources per part is no longer just a nice-to-have, Jabil points out—it’s a requirement. “In today’s market, with inventory drying up in the channel and options becoming limited, having the ability to rapidly select alternative qualified suppliers and keeping your products on schedule is even more critical.”