The global semiconductor market has long been dependent on Asia, but here are some of the major factors shaping chip manufacturing in Europe.
Understanding the Current Electronic Component Lead Times
The timely delivery of electronic components is essential for any OEM to run a successful business, but often long lead times can cause a halt in production which affects revenue.
For a while now we have been dealing with longer electronic component lead times. So, in this blog, we will provide an overview of the different factors which are currently causing these lead times, as well as some pointers on how to approach component acquisition in a time of shortage.
New and expanding markets
If we take a look at the technological developments over the last decade, such as the new yearly models of smartphones, the investment in electric automotive technology, and the introduction of smart speakers and home assistants, we are looking at a time of extremely high electronic demand.
Even before this surge in new tech, we were using capacitors, resistors, transformers and other electronic components in a range of applications, so the shortage is understandable. Put simply, demand is outstripping supply and the technology is growing faster than manufacturers can produce the components to make them.
Limitations of manufacturing technology
As well as the increased demand putting a strain on suppliers, in some cases, manufacturers just don’t have the means to produce the components required for modern technology. In the MLCC industry, for example, manufacturers have already reached their limit of how many ceramic layers can be stacked with current equipment.
A lot of the new and developing tech requires thousands of layers to be stacked onto each chip, meaning it takes longer to produce just one of these chips using the current manufacturing technology. Electronic component lead times will continue to be long until manufacturing equipment catches up with the technology it is producing.
Mergers and acquisitions
Mergers and acquisitions are common in business, with companies being absorbed into others or multiple companies operating as subsidiaries of a larger organisation, often with small independent businesses being bought out by larger corporations.
When these types of changes take place, the transition period can be incredibly disruptive to supply chains and the lead times on electronic components are always likely to extend. This happens while the companies adjust to their new procedural processes, which will include everything from processing orders to shipping.
Tariffs and political tensions
There are also reasons outside of the business world for lengthy lead times on electronic components. Tariffs and trade agreements made by different countries can have a huge impact on the availability of materials for production or the products themselves. The current uncertainty around Brexit is a good example of this, with businesses cautious about investing too much without knowing what kind of trade deal we will have after we leave the EU.
When countries impose tariffs on imported goods or enter into an exclusive trade agreement, this can result in companies from other countries choosing to do their business elsewhere or not being able to afford to buy in the same volume as before. Ultimately, this will result in a shortage for suppliers and OEMs.
Preparing for longer electronic component lead times
Whilst we are currently in a time of shortages for all the reasons listed above, supply chains and OEMs can still find ways to operate that will reduce the negative impact caused by increased lead times. In order to combat the challenges raised by material shortages, manufacturers need to be looking at both strategic sourcing and recycling materials where possible, as well as developing manufacturing methods to be more efficient and reduce waste.
When it comes to supply chains, OEMs and suppliers should work together to forecast when the highest demand for certain components is likely to be. Using past sales data can give a good idea of when to expect your busy periods, in addition to the times surrounding new product launches. Forecasting means that suppliers can pre-emptively stock components that OEMs will need well in advance, significantly reducing lead times.
Whilst a simplified supply chain management approach is best, having qualified and reliable backup suppliers for components is recommended as it gives more flexibility in times of shortages.
Rebound Electronics are one such company equipped to operate efficiently even in turbulent times. Our flexible approach to component supply means we are always ready to adapt to shortages and increased lead times to find solutions that keep supply chains running smoothly.