Surviving Shortage Season

We’re in a major component shortage. The electronics industry is currently experiencing the most extreme component scarcity in over a decade. Lead times on passive-components products have drastically increased as a result, with some suppliers quoting as far out as mid-next year. The shortage and its impact is so widespread that the Electronic Components Supply Network (ECSN) is urging electronics buyers to “review their outlook on lead times for components amid surging global demand and reports of allocation risks on certain products.”

This is a long-term sourcing challenge that industry analysts see lasting beyond the new year. Many organizations have responded to the supply deficit by double- and triple-ordering components, but this has only aggravated the problem further. Suppliers are starting to allocate their inventory, resulting in massive lead times and increased prices.

A shortage of this magnitude isn’t simply caused by increased demand. Industry experts see a number of large-scale changes that are contributing to a “perfect storm” of product scarcity.

A shift in the automotive industry

Advanced driving assistance systems (ADAS), expanded wireless connectivity, and high-end infotainment clusters are no longer luxury features but standards for new vehicles. This shift is causing the automotive industry to require more electronics-based products than ever before, straining global capacity on a large scale.

The rise of IoT

The IoT explosion has created a huge trend in the electronics industry with no signs of slowing down. But supporting “smart” devices require more parts on the circuit level such as sensors, actuators, and MCUs. Components that were traditionally not required are now key to remaining competitive in the market. End products that once had simple feedback circuits now use the expanded electronics content to provide more sophisticated monitoring or reporti

Gartner projects that more than 26 billion devices will be connected to the internet by 2020.

Record-setting M&A activities

Semiconductor and tech mergers reached an all-time high in 2016, causing a domino effect on the supply chain that analysts project lasting through 2018. When two suppliers merge, overlapping products are consolidated and the vendor base for those components is reduced by one. Often times, mergers result in entire product lines being phased out with end-of-life status in favour of higher margin products to recoup investment more quickly.

The impact on sourcing

This shortage is already affecting manufacturers and organizations today. It’s become more difficult to locate a critical component or even a viable replacement at a reasonable cost. Early stages like sourcing and component selection is requiring more time with no real fail-safe plans in place other than double-ordering. In response to rising lead times, many companies are attempting to duplicate their requirements through multiple sources.

However, this trend of registering interest with multiple sources has its load of consequences: Faced with a sudden rise in demand – some of it being false or solely speculative – lead times increase and the threat of allocation becomes a reality.

“There are legitimate concerns about the medium and long-term product availability, pricing [and] possible product rationalisation.”
Adam Fletcher, Electronic Component Supply Network

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