What Can You Do About Component Lead Times and Shortages?
It has been a challenging couple of years for the electronics manufacturing industry: kind of a “best of times, worst of times” scenario.
With the increase in global demand for components, along with widespread supply chain interruptions, the industry is facing some serious issues. Qualitel is urging customers to act quickly. Purchase orders must be placed at least 6 months ahead and long-lead-time components 12-18 months.
In this post, we’re going to talk about three critical root causes impacting the current PCB and assembly market and why you must act now:
- Component Shortages and Longer Lead Times
- Price Increases
We’re also going to discuss some real-world suggestions for what you can do about the current market conditions to help streamline your projects.
There is light at the end of the tunnel, but it will be tough going for a while yet.
According to Investor’s Business Daily:
“The semiconductor industry returned to growth in 2020 despite disruptions from the Covid-19 pandemic, according to World Semiconductor Trade Statistics. Chip sales rose 6.8% to $440 billion in 2020, the group said. It sees semiconductor sales rising 19.7% to $527 billion in 2021. Further, it forecasts chip sales increasing 8.8% in 2022.“
Electronics Industry Component Shortages
The overall semiconductor market appears to be doing well, but there are still massive shortages in the global chip market.
Electronics manufacturers are seeing component shortages and long lead times across the board. And these adverse market conditions have downstream effects on their customers.
At Qualitel, we’re doing everything we can to mitigate the lead-time and component cost increases, to limit direct customer exposure. Keep reading for more on this.
There are several factors causing supply chain disruption. For example, there are huge demands for components from the automotive, appliance, and electronic device industries. Increased regulatory pressure on semiconductor companies, accidents at several high-profile Japanese semiconductor facilities, and recent weather-related power outages at several Texas plants have also contributed to the shortages.
Longer Lead Times
Demand is outpacing the current manufacturing capacity causing extended lead times, especially in the PCB and assembly market. Manufacturers are producing components at significantly lower volumes. Component allocations to manufacturers have been decreased across the board. This allows everyone to keep operating, but at significantly reduced plant capacities.
Some component lead times have gone from 16 weeks to as long as 52 weeks. In addition, global market forces have caused Taiwan Semiconductor (TSMC), the world’s largest semiconductor fabrication company, to fall behind 6 to 12 months on customer orders.
The TSMC delays have negatively affected production capacity at major “fabless” manufacturers worldwide including:
- ST Microelectronics
- Analog Devices
- On Semiconductor
- Samsung DDR3’s
These delays, spilling over into the manufacturers’ base of worldwide Global 1000 customers, have caused a cascading effect on the entire electronics industry.
As a result of longer lead times and limited availability of components, we’re seeing manufacturers starting to raise their prices significantly. They’re also charging extraordinary expedite fees to meet delivery dates. We expect this trend to continue until at least the end of Q2 of 2022.
Current worldwide economic conditions are also driving up the prices of natural resources like oil, copper, and other metals, including exotic and rare earth metals. Qualitel and other electronics manufacturers have been notified of approaching PCB and sheet-metal price increases of 10-15% starting next year, for example.
Rising energy prices will also continue to increase transportation and operational costs at manufacturing plants and facilities throughout the electronics industry.
Inflation in April accelerated at its fastest pace in more than 12 years. The U.S. economic recovery kicked into high gear, causing energy prices to also climb higher, as reported by the United States Department of Labor. The Consumer Price Index, which measures the prices of goods and services commonly purchased by consumers and households, rose 4.2% from the previous year as well. This was a much larger increase than expected.
Inflation will no doubt continue to drive prices up globally. Central banks are continuing to print money to combat the extended unemployment and economic malaise caused by the pandemic. There doesn’t seem to be an end in sight for these policies.
Many electronics manufacturers have also struggled to maintain their workforce of highly skilled professionals since the pandemic began in early 2020. Labor costs have increased significantly over the past 18 months, primarily due to personnel shortages and fierce hiring competition industry-wide.
The skilled labor market in the electronics manufacturing industry will continue to be highly competitive for the foreseeable future.
So where do we go from here?
Times are tough, but we can make it through these tough times together.
We have established tight communications channels with all of our clients.
Qualitel will continue to work closely with our customers to minimize their risk and cost impacts. Our customers have been notified that we have extended our JIT ordering from 3 weeks to 6 months for most components.
We have asked our customers to place an order at least 6 months ahead and pre-buy inventory for key components out through the end of 2022. This will help mitigate the risk of long component lead times and costs.
What else can we do to help each other weather the storm?
The Qualitel advantage has not and will not change, regardless of global economic and industry-wide conditions.
Get in touch with us today to discuss how the three pillars of the Qualitel Advantage can help you weather the storm:
- Impeccable Quality Assurance Throughout the Manufacturing Process
- Turn-Key, Time-Sensitive Manufacturing Services (Quick-Turn Prototyping)
- Meticulous Supply Chain and Logistics Management
These three pillars provide our clients with a strategic business advantage over their competition, especially during these challenging times.
Find out why aerospace, medical, military, and industrial process companies are still choosing Qualitel for electronics manufacturing.
We truly appreciate your trusted business relationship!