How to deal with the global electronic components supply shortage crisis?

The global shortage of electronic components has emerged as a recurring issue, often coinciding with major international events. This crisis has had a significant impact on the electronic manufacturing industry, resulting in two major consequences. Firstly, it has led to price increases, affecting the overall cost of electronic products. Secondly, it has directly resulted in PCB shortages, thereby impeding the advancement of electronic technology. In this article, TechSparks will provide a comprehensive discussion on the causes, hazards, and potential solutions to address component shortages.

Competing for IC components
Table of Contents

Why there is a Shortage of Components

Causes of Component Shortages in Recent Years

  • 2018: China implemented a policy banning the import of solid waste; there was a dramatic increase in demand for memory and MLCC (multilayer ceramic capacitors).
  • 2019: The fragility of the supply chain resulted in issues with memory, wafer foundry, and packaging testing.
  • 2020: The COVID-19 pandemic led to lockdowns and the closure of production facilities, causing disruptions in imports and exports.
  • 2021: The COVID-19 pandemic resulted in a significant increase in demand for remote electronic applications.
  • 2022: The increased demand for high-end chips led to some manufacturers stockpiling large quantities.

Root Causes of Global Component Shortages

Increased Technical Complexity

Increased Technical Complexity

An illustration of this is the integration of Internet connectivity, wireless capabilities, and artificial intelligence in various home appliances, such as microwaves and refrigerators. These advancements heavily rely on semiconductor technology, which is a key factor contributing to the current component supply shortage.

The increasing demand for sophisticated and miniaturized components poses challenges in their manufacturing process. These components are more complex, expensive, and time-consuming to produce. Manufacturers often invest years in research and development to create new semiconductor technologies, and factories may need to upgrade their equipment to meet these demands. Furthermore, the complexity of technology makes product repairs more challenging, leading to a trend of component replacement rather than repair, thereby exacerbating the scarcity of these components.

Trade Dispute

Trade Dispute

For manufacturers who rely on local suppliers, the impact of trade disputes may be relatively minor. However, companies engaged in large-scale imports and exports can face significant challenges due to trade tensions. These challenges manifest as friction and increased costs within the supply chain, ultimately impeding economic growth.

Political tensions between nations can result in export restrictions or embargoes that restrict the availability of critical components. An illustrative example is Japan’s imposition of export restrictions on materials used in semiconductor production in 2019, leading to a shortage of these essential components. Additionally, regulatory requirements and standards enforced by certain countries create barriers to the importation of specific components, further constraining supply and causing higher costs and longer lead times.

Harm of Electronic Part Shortage

Delayed or even Discontinued Production

In the process of designing and producing electronic devices, the timely availability of components plays a crucial role. Any delay in accessing the necessary components can cause significant setbacks in PCB assembly, leading to products not being delivered on schedule. In severe cases, it can even result in a complete halt in production. Such delays or stoppages can have detrimental effects, impacting the reputation of the brand and causing financial difficulties. Never underestimate the impact of late deliveries or production stoppages. On one hand, it can erode customer trust and loyalty, potentially leading to a decline in market share. On the other hand, the financial consequences can be significant, as the inability to deliver products on time may result in delayed revenue generation and difficulties in meeting financial obligations.

Reduced Efficiency

The impact of component shortages extends beyond delays and financial implications. It also significantly affects work efficiency within enterprises. When faced with a shortage, companies are compelled to invest additional manpower, time, and material resources in seeking alternative solutions. This increased effort leads to a prolonged project timeline and elevated costs. Moreover, in order to meet deadlines, there is a risk of resorting to rushed measures, such as utilizing substandard or counterfeit components.

Increased Costs

When parts are in short supply, the cost of those parts can increase significantly due to increased demand and reduced supply, driving up overall production costs. This can lead to lower profit margins, as the cost of production may exceed the selling price of the finished product. Moreover, if the company is unable to pass on the increased costs to customers, it may result in a loss of competitiveness in the market. 

Measures Against Electronic Component Lack

Keep Calm

The current shortage of electronic components is a widespread problem affecting many companies in the industry. However, reacting with panic or retreating will not solve the issue and may even exacerbate it. It is crucial to remain calm and face the situation rationally. Despite the negative impacts that component shortages may have on companies, there are also potential opportunities to be found.

  • It can eliminate many unqualified competitors in the industry who cannot cope with supply chain disruptions and customer demands.
  • It can help customers solve problems and improve customer stickiness by providing reliable solutions and services in times of uncertainty.
  • It can slow down the pace of expansion and give time to sort out the structure of the enterprise and implement changes that can enhance efficiency, innovation and competitiveness.

Therefore, TechSparks suggests that enterprises should adopt a proactive and strategic approach to deal with the shortage problem. This includes diversifying suppliers, securing long-term contracts, forecasting demand accurately, optimizing inventory management, investing in research and development, and communicating effectively with customers and stakeholders.

Diversify Supply Sources

A diversified supply chain can help electronics manufacturers cope with the global component shortage. By expanding their supplier network, manufacturers can establish a more stable and reliable supply chain.  This involves sourcing components from different regions or countries, or developing domestic production capabilities, they can reduce their vulnerability to supply disruptions and ensure a more consistent and reliable supply. Diversification can offer several advantages, such as lower dependence on a single supplier, higher bargaining power, greater flexibility and resilience, and lower exposure to delays, quality problems, price fluctuations, and geopolitical risks.

However, it also requires careful planning and management to overcome the challenges of finding and maintaining qualified suppliers, ensuring component compatibility and interoperability, managing multiple contracts and regulations, and building trust and long-term relationships. Therefore, companies should adopt a balanced diversification strategy that suits their specific needs and objectives.

Explore Alternative Parts or Technologies

To reduce reliance on components that are in short supply, manufacturers can explore alternative parts or technologies. For instance, they can use readily available components or those in lower demand from other industries, like ceramic capacitors or OLEDs. Alternatively, they can develop products that use different technologies that do not require the same or have lower requirements, such as designing products that use cloud or edge computing instead of relying on local processing power. This way, manufacturers can increase their flexibility and resilience during times of PCB component shortages and maintain their competitive edge in the market.

However, this approach requires companies to invest more in research and development costs to identify and test new components or technologies, modify product designs and specifications, and invest in equipment and personnel. Nonetheless, exploring alternative parts or technologies has several benefits, including reduced reliance on individual electronic components, increased flexibility and resilience, enhanced product performance and innovation, and differentiation from competitors, which can lead to new market opportunities.

To ensure the feasibility of alternative components or technologies, companies must evaluate their technical and economic feasibility, ensure compatibility with existing systems and infrastructure, and meet quality and reliability standards. They should also ensure that they can be mass-produced at a reasonable cost.

Proactive Inventory Management

One way for manufacturers to meet the challenge of shortages is to adopt proactive inventory management practices that optimize production and distribution processes. Just-in-time (JIT) inventory management, which involves ordering and receiving components only when required for production, is recommended by TechSparks.

JIT can effectively reduce the impact of component shortages and minimize inventory holding costs such as storage space, insurance, and scrap costs. However, implementing JIT requires manufacturers to have a forward-looking perspective, accurately forecast future demand, and maintain close communication with suppliers. Therefore, electronics manufacturers need to invest in advanced analytics tools and collaboration platforms to monitor demand trends, forecast component demand, and coordinate effectively with suppliers.

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