The Survivor’s Guide to Shortage Season

The connected world is growing at an exponential rate. Industries that have historically never had a need for electronic components are now fueling unparalleled demand. As a result, an ongoing shortage has gripped the industry as component manufacturers struggle to meet requirements.

Lead times are soaring, manufacturers are double or triple-ordering components in a desperate attempt to get ahead, and all the while the problem is getting worse. Surviving this shortage season requires a deeper understanding of the problem, a measured approach, and the proper tools to succeed.

The State of The Shortage: Underlying Causes and Ongoing Concerns

Shortages like this one are nothing new, but in this case a perfect storm has created a massive problem across multiple industries. The last major shortage was all the way back in 2001. Components that fall into passive, electromechanical, and interconnect categories were in short supply throughout 2018, and the problem persists into the new year.

Multi-layer ceramic capacitors (MLCCs) were among the most severe of the shortages, according to Morgan Stanley and Stifel. We’re talking about components that, in some cases, cost less than a penny. While they are small in stature and price, these shortages are threatening global supply chains. Why is that?

The answer is simple: these components are in higher demand now than they’ve ever been. Constantly evolving products are using exponentially more components with each generation.

Couple this with the rise of IoT and the electrification of the automobile, and demand is coming from more directions than ever before.

“We see high demand pulling more units into the marketplace; we also have a backdrop of products becoming more technical. It would be a struggle to find a vertical market that isn’t growing. There’s automotive, data, industrial, IoT, medical, and anything ‘smart’.”

– Andy King, President of Arrow Electronics’ global component business.

With two titans like the automotive and smartphone industries fueling demand for components, it’s not hard to imagine how that would put a strain on suppliers. While modern automobiles contain thousands of MLCCs per vehicle, predictions indicate that a single car will have up to $6,000 worth of electronics in it by 2022. To survive and thrive into the future, we need to pinpoint long-term solutions.

A Long-term and Sustainable Approach

Ongoing trends ensure that this issue isn’t something that will go away on its own. Automobiles are moving away from their roots and embracing modern software-driven solutions like driver assistance, safety systems, displays, and sensors. All of these things raise the requirement for additional components.

The IoT industry has also come out of nowhere and introduced millions of connected devices into the global market. Current predictions point to as many as 30 billion IoT devices by 2020.

As lead times continue to stretch into the future, many manufacturers resort to double or triple-ordering components in an effort to stock up. This only exacerbates the problem and fuels the ongoing shortages.

With analysts predicting that the shortage will last into the first quarter of 2020, it’s time to start thinking about long-term solutions:

• Identify alternate components that match FFF (form, fit, function)
• Forecast demand based on sales data
• Avoid panic buying
• Utilize Industry resources (guides, best practices, etc.)
• Communicate with your suppliers
• Eliminate single-sourced parts
• Stay agile and aware

In cases where alternate options or PCB changes aren’t possible, looking to aluminum or tantalum polymer capacitors offers the potential for a higher capacitance than typical MLCCs. Despite this, making such a chance requires a keen understanding of capacitor types.

Several manufacturers have risen to the occasion, providing guides to help engineers understand their options. Panasonic, for example, offers a guide entitled “How to Survive the MLCC shortage.” Ultimately, there aren’t many things you can do as a manufacturer to end the shortage, but you can become part of the solution instead of the problem.

True solutions in a shortage like this come from strong communication with your suppliers, and tools that keep your organization aware and agile.

Looking at The Shortage From The Supplier’s Perspective

During a shortage like this, all of the pressure is on suppliers to deliver. The reality, of course, is that there’s not enough to go around. Every shortage is a different beast, but the one we are in right now is centered around limitations in production. We have plenty of raw materials, but the speed of production is not fast enough to meet demand.

In a situation like this, it’s important to place yourself in the shoes of the supplier and look at it from their perspective. You should already have a strong line of communication with your supplier. During a shortage, constant communication with them will be key to everyone’s survival.

Your supplier may work with several other manufacturers. A certain percentage of allocation will be assigned to each customer. Ultimately, your relationship with suppliers will decide how much flexibility they offer during shortage season. Once you’ve established an agreement surrounding their production roadmaps, you can adapt that to your own product designs.

Constant communication, combined with flexibility in your own production will allow you to align your plans with the capacity of your suppliers. Keeping their limitations in mind will allow you to set expectations accordingly. If you do happen to hit a roadblock in your sourcing, this is where modern tools can step in to fill the gap.

Harnessing The Proper Tools

Connecting your BOM to the realm of big data opens up a wealth of possibilities for surviving the shortage season. With Supplyframe, you have immediate access to real-time inventory from your preferred list of suppliers. Combine this with deep insight into individual parts on your BOM like market and pricing history, and you have an immediate understanding of where you stand.

Proprietary features like Risk Rank also offer instant feedback on the reliability and status of components. This allows you to make decisions in the moment. When all else fails, Supplyframe gives you the tools and the knowledge you need to not only survive the shortage season, but thrive long into the future.