Electronic product delays seem to be the new normal these days. Whether it’s the launch of Google’s Pixel, Nintendo’s Switch gaming console or, most recently, Apple’s iPhone X, consumers have come to expect products will be available weeks or months after they’re promised. But delays affect manufacturers in more ways than just customer dissatisfaction. Unexpected wait times give competitors time to enter the market and can result in lost sales.
Production issues, including component shortages, often are cited as the primary reason for product delays. For example, according to The Digitimes, poor yields of the 3D NAND chips used in Apple’s iPhones, were a direct contributor to supply constraints. In the printed circuit board industry, we are experiencing shortages primarily in capacitors, resistors and memory products. However, many other components also are in limited supply including transistors, logic devices, application-specific integrated circuits (ASICs), and programmable logic devices (PLDs).
With the current component shortage now expected to last through 2018, design engineers and buyers are dealing with numerous problems including:
- Higher Costs. When demand is high, and supply is limited, prices tend to increase; and PCB components are no exception. Assembly companies purchasing parts on behalf of customers are seeing premiums of 300 – 800% on traditionally low-cost components. When these hard-to-find parts finally are located, new minimum order quantities are in place, forcing buyers to purchase more than they need and pushing costs even higher.
- Longer Lead Times. Lead times for most components now are eight to ten weeks, although some manufacturers are quoting lead times beyond 20 weeks. EPSNews reports passives lead-times are stretching to 30-plus weeks with some orders quoted for delivery into mid‐2019.
- Zero Inventory. Buyers struggling to find parts are expanding their searches to uncover new sources yet are still unable to fulfill the Bill of Materials (BOMs). Christy Powell, Sourcing and Purchasing Manager at Advanced Assembly, confirms that purchasing an engineer’s BOM items is taking longer and requiring more in-depth searches. “After an initial search, we can find about 70% of the requested parts,” said Powell. “To find the remaining, harder-to-find line items, we reach out to brokers and other suppliers to find certified parts. Even so, we occasionally see passives on a quoted order unavailable.”
- Counterfeit Parts. Another negative impact of the component shortage is the rise of counterfeit parts. Relabeled and out-of-date parts are entering the supply chain at an alarming rate. Companies without stringent sourcing requirements may unwittingly use these sub-standard parts and cause problems in product functionality later.
How’d We Get Here?
Fluctuating demand for electronic components over the past few years caused manufacturers to refrain from making large capital investments in their infrastructures or holding large inventories. While this makes sense from an economic standpoint, it resulted in wide-spread capacity constraints. In an article last September, Forbes.com reported that Micron, for example, expects DRAM supply growth to remain around 15% to 20%, while demand will grow between 20% to 25%.
Part obsolescence and natural technology migration also are contributing to the component shortage. As older parts are phased out and replaced with more profitable products, suppliers simply are not replenishing their inventory. “We’ve seen an acceleration of end-of-life notices from suppliers this past year,” said Powell. “Many manufacturers are no longer making parts that have been around for 15+ years. Unfortunately, those parts are still designated in many of the product designs PCB assemblers are being asked to build.”
Another driver behind the component shortage are an unusually high number of industry merger and acquisitions. In 2016, semiconductor and tech mergers reached an all time high with consolidation driven by Internet of Things, cross-border deals and private equity buying. According to EPSNews, there were 114 semi-conductor deals in 2016 with an aggregate value of $124.9 billion.
How to Weather the Storm
Until supply and demand even out, engineers and buyers must find new ways to cope with the current component shortage. Below are five recommended strategies to help keep projects on-time and on-budget despite the challenging conditions:
- Maintain Relationships with Suppliers. Top-tier manufacturers such as Digi-Key, Mouser and Newark, provide the majority of electronic components for PCBs. Working directly with these suppliers often is the best first step in securing necessary parts. Some assembly shops even have dedicated quoting teams on-site at suppliers, which can give them priority access to available inventory. In addition to the direct manufacturers, there are a number of certified supply brokers that specializes in sourcing hard to find and/or obsolete parts and components. Working closely with these brokers can also help in locating and purchasing what you need.
- Hold Inventory. Another best practice during this time is to purchase and maintain an internal inventory of high-demand parts. Once you find a supplier, purchase enough parts to meet your demand over the next 12 months, especially passives. Most PCB assembly companies allow customers to supply their own parts and boards, when necessary. By maintaining your own small inventory, you can avoid projects delays and eliminate the frustrating process of part location each time a job is ordered.
- Plan Ahead. The sooner buyers can begin looking for parts, the better. If designers have specific component requirements, it is advisable to send the Bill of Materials to buyers and/ or your assembly partner as soon as possible. This way, they can begin the process of locating and securing parts, so they are ready to be placed once the design is verified and the order is ready to go.
- Network with Other Designers.Most PCB assembly shops require customers purchase additional parts to account for any losses that may occur, especially with smaller components such as 0603, 0402, and 0201-sized capacitors, resistors and inductors. This is because small parts may get lost during mount/dismount from the feeder, and no one wants to put the project on hold while more parts are ordered. If these extra parts are not used, they are returned with the customer’s completed order. As the English proverb states, “one man’s trash is another man’s treasure.” While you may not have a need for the extra parts, they may just be what your colleague is trying to find for his or her project. Networking with other designers can be a valuable source of parts when supply is tight.
- Be Open to Substitutions. This is probably the most important strategy for keeping your projects on time. If you can, be open to substituting any part that matches fit, form and functionality. If that is not possible, at the very least, consider allowing part substitutions for passives only. This provides confidence that the main components are purchased as designated but avoids all the other issues associated with locating passives. “At Advanced Assembly, we identify alternates that have not been affected thus far by tight component demands,” said Powell. “Part suppliers don’t always suggest substitutions, so it is often advantageous to go outside the originally designated manufacturer. By allowing possible alternates, customers lessen the impact of the part shortage and get their completed projects when they need them – even the next day.”
If analysts are correct, the current part shortage may continue through 2018, which means lead-times won’t be decreasing anytime soon. Unfortunately, there is not a one-size-fits-all solution. Engineers need to stay informed and in close contact with their internal sourcing department or their assembly partner to make appropriate decisions. Together we can weather the storm and continue bringing high-quality products to market fast.
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