Four Pressure Points for Commodity Managers in 2023

Uncertainty and complexity are here to stay. Today’s commodity managers are facing numerous challenges as they seek to solidify and adapt their sourcing strategies to an ever-evolving global landscape. 

In our conversations with both current and prospective customers, we’ve identified four pressure points mirrored by many in the global electronics industry. Join us as we look at these challenges in further detail, uncovering opportunities for how to thrive in 2023 and beyond. 

1) Managing Component Costs

Not surprisingly, the one common concern among conversations with industry professionals, was the need to lower component costs. 

Here are six common concerns:

1. We need to reduce the number of suppliers 

2. We are now in cost-reduction mode 

3. We need to establish a cost-reduction target

4. We need to get away from brokers (spot buys), which are expensive

5. Our customers are demanding cost-reductions

6. We need help finding lower-cost alternatives

Most cost-reduction plans focus on reducing the number of suppliers and developing strategic sourcing relationships. Also important is to eliminate buying from high-priced brokers.

For some commodity managers, the challenges are more basic. For example, one respondent said they didn’t have the data that lets them know what they spend because their bill-of-materials has 250,000 line items. 

Managing large complex BOMs is challenging and expensive. One recommendation for reducing component acquisition costs is to calculate the BOM cost in the design phase and make tactical adjustments as needed to avoid costly spot buys. 

2) High and Low Points in 2023

According to Supplyframe Commodity IQ, global electronic component demand and sourcing activities quarter-on-quarter in Q1 2023 will be down 2%. On the bright side, there will be an 8% decline in commodity lead times with part allocations for some active and passive components.

Other encouraging signs include normalizing the supply-demand balance and reduced pressure on component pricing and availability. For H2 2023, the CIQ forecast is for 85% of semiconductor pricing dimensions to be stable and the other 15% to move squarely in the buyer’s favor. (Memory devices are not included.)

Commodity IQ operational metrics reveal that component availability has largely improved, and prices have stabilized across many commodities and sub-commodities, particularly for passive components. 

As world economies exhibit remarkable resilience in the face of inflation and threats of recessions, Q3 2023 lead times for all electronic components are forecast to ebb dramatically from Q3 2022. Nearly 60% of lead time dimensions are projected to decrease in Q3 versus about 1% in Q3 2022, and none are expected to increase in Q3 compared to a massive 73% in the same quarter of 2022.

3) Asia Pacific Expected to Post Slower Growth in 2023

According to WSTS, the Asia-Pacific semiconductor sector is forecast to decline by 7.5% year-over-year in 2023. All other regions are expected to remain relatively flat in 2023.

For 2023, the global semiconductor market is projected to decline by 4.1% to $557 billion, driven by the memory segment. In the latest 2023 forecast, memory demand is projected to fall to $112 billion, a 17% decline compared to 2022. Some other major categories, such as optoelectronics, sensors, and analog devices, expect single-digit growth in 2023.

4) It starts with Design

A successful product launch starts in the design phase. 

Robust product design is essential for a successful product launch. Global electronic component demand and sourcing activities quarter-on-quarter in Q1 will be down by 2%, while engineering design will be off by 20% – further evidence of demand erosion.

Managing large complex BOMs is challenging and expensive. To reduce component acquisition costs, calculate the BOM cost in the design phase and make adjustments as needed to avoid spot buys from brokers.

Seeking Better Decision Support in 2023? 

Better decisions begin with better intelligence. An understanding of the global landscape, from reliable forecasts, to commodity-level analysis, can give you and your teams the information they need to balance cost and risk. 

In a new whitepaper, we explore ten industry figures that support the need for better decision support in 2023. Find out how you can harness new forms of intelligence to address these pressure points and others. Download the whitepaper today!