How to Survive the Ongoing Component Shortage

By Mike Muson, Supplyframe

mike-compressedThroughout 2017 and into 2018, the electronics industry has been suffering from the largest component shortage in supply chains since 2010. Unprecedented lead-times are stretching past 30 weeks or more. A short-term solution isn’t in the cards, as experts expect the shortage to last well into 2018.

That being said, there’s still hope. By understanding the underlying causes of the shortage, organizations can become part of the solution instead of the problem.

Three Underlying Causes 

There’s no single cause of a shortage like this. Instead, the sudden lack of inventory comes from a combination of factors:

Mergers and Acquisitions (M&A)

Prior to the onset of the shortage, mergers and acquisitions reached an all-time high in 2016. These kinds of deals seem like harmless changes that bring more business to the market, but such shifts cause strain on global supply chains.

During these deals, outstanding products are merged and overlapped. During consolidation, any low-margin projects are cut from production. This pairs with a new surge in demand to put a huge strain on component inventory. As a result, companies are scrambling to order excess supply in case of a discontinued component line.

The Internet of Things (IOT)

The Internet of Things isn’t a new concept, but a growing demand for connectivity, portability, and smarter devices requires more and more electronic components to meet requirements. Smart devices that fall into this IOT category require sensors, actuators, MCUs, and many other components. In the past, these components were not required, but now they are key to participate in this market. Gone are the days of simple feedback circuits in these devices.

The Expanding Automotive Industry

Consumer vehicles are merging with technology at an exponential rate. Companies like Google, Uber and Tesla, along with GM and Toyota, are enhancing their vehicles with high-end features like augmented reality windshields, and autonomous functions. The goal is clear: self-driving vehicles. As companies continue to march toward this end, the entire automotive supply chain demands electronic components to run smoothly. This sudden and ongoing shift from one of the world’s largest industries is felt across supply chains everywhere.

How to Survive in The Shortage Season

Without any quick solutions in sight, organizations must plan on a long-term scale and resist the urge to order extra components in the hopes of stockpiling them. This will only aggravate the current situation. Instead, consider broadening your approved vendors list, and mitigate risks associated with single sourcing by preparing alternative sourcing scenarios. This will give you the ability to remain agile and utilize different sources. Along with widening your vendor scope, you should also keep your finger on the pulse of the industry. Keep a close eye on the elements of your BOM spreadsheets. Monitor both trends and changes in inventory for the components, and your procurement team will have the knowledge they need to pinpoint and shift focus as lead-times change. While it’s tempting to double up on your sources and order more components than necessary, it’s paramount that your organization avoids these tactics, as they only serve to exacerbate the problem. Proper BOM management and smart sourcing will ultimately lead to the end of this shortage.

Mike Muson, Senior Director of Enterprise SaaS at Supplyframe, has spent over 20 years on the business side of technology understanding clients’ unique needs and delivering creative solutions that solve those problems.  His areas of expertise include: CEM/EMS, Contract Manufacturing, OEM (Design Through Production), Product Costing, Quoting Software, SMT, PCBA, PCB, OEM Relationships, Global Supply Chain, Procurement Optimization,Strategic Sourcing & Procurement, and Quoting Software.