As if Covid-19 didn’t take a heavy enough toll on the global supply of electronic components, the subsequent, largely unexpected upturn in certain markets has placed even more strain on the supply chain. It seems nobody in the industry has been immune to component shortages, with even the automotive sector – normally an unstoppable force – coming to a virtual standstill for a period of time.
This places contract electronics manufacturers (CEM), component distributors and others in the invidious position of acting as middle-men walking a tightrope between their customers, who want their components as quickly as possible, and their suppliers, who just can’t get their hands on critical parts for love or money.
To find out just how severe the problem is right now, and the impact it is having, we consulted two South African CEMs and two component distributors for their insights into the situation, and advice for those in the industry to best mitigate its effects.
The CEM representatives are Robin Scholes, business development manager at Production Logix, and Deon Miller, managing director of Projects Concern Manufacturing. On the distribution side, we have input from Dewet Joubert, head of offers for emerging markets at RS Components SA, and Renato Martins, managing director of Altron Arrow.
Contract electronics manufacturers
Dataweek: What problems are you experiencing with regard to sourcing components?
Deon Miller: Component sourcing in general is tough, but I believe the current situation is worse than the 2018 shortages we experienced. The current state of the world – with Covid, material shortages for component suppliers, and especially the case of a factory that burnt down in Japan – is making it virtually impossible to plan and to gain access to certain components.
Stock is fast disappearing from the likes of Digi-Key and Mouser, which are generally your last option when buying components due to the price. Once this stock is depleted, we and our customers’ problems just become a complete nightmare.
Robin Scholes: We are definitely seeing and feeling the shortages. For example, we might quote on a bill-of-materials (BOM) and then when we get the order from the customer and want to load orders on our suppliers for those parts, suddenly the stock has disappeared. So definitely, between quoting and loading orders on our suppliers, we’re seeing stock is just vanishing at such a high speed and then there’s no replenishment of that stock.
The situation is definitely causing headaches, but thankfully we’re working with a great bunch of customers who don’t take an attitude of “well, it’s your problem now” – it’s more about collaborating to figure our way through this: what’s the best course of action, do you happen to have stock, do you want us to go searching for it all over the world, what is the best solution to move forward?
Dataweek: How does this affect your customers in terms of lead times, pricing, perhaps even modifying designs to accommodate parts that are more readily available?
Deon Miller: It is affecting all our customers which is really sad – if they cannot get components then we as a contract manufacturer will also come to an abrupt stop. Some of our customers generally plan 4-6 months ahead and even they have been caught out with the current situation. One of our customers actually mentioned that his facility will come to a grinding halt by June 2021 if he does not receive his components.
Component lead times of eight weeks have been moved out to 26 or 52 weeks, which is unheard off. To make matters worse, the majority of these suppliers increased their prices, so the knock-on effect is huge to our customers and in some cases this is taking that competitive edge away from South Africa.
Redesigning/modifying existing boards is an option but will cost a huge amount of money and will take time to do. A customer of ours has been using a certain platform for the last 15 years and has thousands of units in the field, effectively making it impossible to change. As this customer mentioned to me, “a change is not that simple.”
Robin Scholes: I was speaking to a client who was using a specific part in his design which was all of a sudden on a two-year lead time. There was no direct replacement or solutions he could uncover, and nothing the component distributors could recommend as a drop-in replacement. He therefore had to face the prospect of redesigning about ten variants of his product, which would comprise the engineering time to redesign, and re-obtaining all the relevant certifications and approvals which would be a roughly R500 000 financial impact.
We’ve been sending out emails to all our clients to warn them of these issues, and some are not even aware of it. Sometimes they check in their CAD software for availability of parts for their design, but they don’t go back tomorrow and check again, they just know that at that instant in time when they checked, everything was fine. So because they’re not interfacing directly with distributors and don’t have open relationships with them, they get no feedback until it’s too late.
Dataweek: It’s hard to predict what’s going to happen these days, but do you see the problem continuing for a long time?
Deon Miller: Yes, this problem will be here for the next year at least but it is impossible to predict what is actually going to happen. We are constantly in contact with the major suppliers in South Africa and even they are frustrated and have mentioned to me that there is currently no light at the end of the tunnel.
Robin Scholes: For now it’s hard to see any light at the end of the tunnel. The silicon manufacturers’ ramp-up times are so long, and because of Covid and everything, they ran their inventory to minimal levels to reduce cost and overhead because they weren’t projecting great sales. Then all of a sudden there was a boom and they were caught with no stock on hand, and wafer suppliers also couldn’t cover all the orders. That means pricing is affected, lead time is affected, and so forth.
At some point there is such a backlog that it becomes viable to build additional factories, but the turnaround time is a year plus. So in my mind we’re looking at a bare minimum of one year. In all my time in the electronics industry in South Africa I’ve never seen it as bad as what it is now – with even the automotive industry (normally top of the food chain) shutting down internationally because they can’t get components.
Dataweek: What suggestions do you have to help customers manage the situation?
Deon Miller: Forecasting is always very tough, and some customers have actually mentioned to me that they cannot predict what the market is going to do over the next year, but my suggestion to our customers is to at least predict or take a calculated risk where possible. In that way, we will at least be able to assist with securing some components going forward – securing the future and also eliminating more possible unemployment.
I have to mention that the majority of our suppliers have come to the party to assist during this global crisis – they are willing to hold stock provided you place an order. So my advice to our customers is to look at your last two years’ sales and predict a forecast for the next year – at least some production will be better than no production.
Robin Scholes: For components that are particularly critical to their company, such as a microcontroller used in several of their designs, clients should look at securing and ordering stock of that.
On your BOM, I would strongly recommend listing equivalent parts that will function the same. For conventional components like capacitors, lay out your PCB to accommodate multiple footprints – if a part comes in multiple pin spacing options, lay out your board so it will take all of them. Little things like that can potentially save your life, or at least allow for a bit of wiggle room, down the road. Finally, try to avoid specialised parts or uncommon packages.
Dataweek: Any other comments related to these issues?
Deon Miller: We at Projects Concern Manufacturing are working really hard with our customers to mitigate the risk where possible for the next year. Customers must use us to see what we might have in stock and we will also go out of our way to try and assist them with their requirements.
Robin Scholes: Our local suppliers are doing a good job of being proactive, particularly where we have one-on-one relationships whereby we’re dealing with actual people and not just emails or online ordering. We’ve been told by our suppliers that there are issues, and we’ve received some formal notifications from some of them. So they are trying to help, and they definitely do add value in terms of the knowledge they bring to the market.
Component distributors
Dataweek: What problems are you experiencing with regard to sourcing components for your customers?
Dewet Joubert: Every order is uniquely impacted by multiple market and supply chain variables, through to raw material. Disruptive events unsettle the relatively stable rhythm within these chains. With a massive range of options on offer to select from, the situation is exponentially more complex.
Benefiting from a solid foundation of global stockholding, the main challenge at this point is the reduced available capacity to move urgent freight to the right location and the increased cost of freight. Considering that supply chains are at different stages of adjustment and recovery, new challenges can emerge at component level.
Renato Martins: We are facing huge challenges in meeting our customers’ requirements. The issue is that component lead times moved out quickly and gave the distributors very little time to react. We have also seen huge price increases from most suppliers. Covid-19 is also impacting the supply chain part of our business with regards to freight and deliveries. Less flights, price increases, parts being bumped at the last minute – this is really a crazy period for our business.
Dataweek: How does this affect your customers in terms of lead times, pricing, perhaps even modifying designs to accommodate parts that are more readily available?
Dewet Joubert: There is the occasional short-term delay but we can mostly source what our customers need inside our usual service parameters from available local stock, global distribution centres and our trusted suppliers. Being in a position to offer alternatives from top brands also helps to manage the risk where availability is under pressure.
In general, high levels of availability have been sustained despite the additional disruptions of the last year (Covid and Brexit). The significantly increased logistics costs can impact pricing and be compounded by supply shortages, although there are various other factors to consider that determine the outcome at component level.
Renato Martins: Our customers find it hard to plan their manufacturing based on these delays. The details pertaining to the quotes we submit change daily, which makes it difficult for our customers. With the market opening up again, businesses are trying to claw their way back to some sort of normal and then they experience shortages.
Customers will need to work closely with distributors in terms of planning and forecasting and a few more risks will have to be taken by all parties concerned with regards to buying stock, and certain customer designs will have to be looked at to accommodate small modifications, alternative components, equivalent products and so forth.
Dataweek: It’s hard to predict what’s going to happen these days, but do you see the problem continuing for a long time?
Dewet Joubert: With rapid innovation and advancement in some component technologies, the challenge will remain. Manufacturers continuously innovate to compete, leading to short product lifecycles and supply challenges. Despite the high unpredictability, much learning happened throughout the major disruptions the past year. This will hopefully lead to accelerated innovation and greater collaboration in supply chains that aim to reduce the risk and impact of major disruptions.
Renato Martins: Unfortunately yes, I try and read a lot and what I am reading lately does not paint a pretty picture. Huge automotive companies in the US have cut back on production due to shortages, with presidents and ministers all getting involved in finding solutions. These cutbacks and shortages will have to be made up for at some time which will extend this shortage for a while, at least for 2021 and maybe even beyond.
Dataweek: What suggestions do you have to help customers do accurate forecasts?
Dewet Joubert: Do your best with the relevant data and tools you have available to build a reasonable forecast and develop the capability to be very agile in response to a changing reality. Simulate your supply chain with risk probabilities and do sensitivity analysis to refine and find a balanced view. This is by no means easy so the focus should be on the critical few components that determine your success.
Renato Martins: Planning and communication are key. As I mentioned above, customers need to work closely in partnership with their respective distributors. Our industry is facing a huge challenge and we will only get through it if we work together. Panic buying is also not the way forward as this will cause extra strain on the supply chain. Buy what you need, but do so in advance. This is always a difficult task to manage, as customers worldwide tend to panic and then process orders way above their actual demand. This in turn has a knock-on effect to the OEM suppliers and to the wafer fabs which are already at full capacity.
Dataweek: Any other comments related to these issues?
Dewet Joubert: Consider areas that were shown up as particularly vulnerable to the changes experienced over the past year. What are the key uncertainties that remain? What capabilities can be developed that are universal to multiple scenarios? Collaborate closely with suppliers as your partners, and look closely at their ability to absorb shocks in supply, especially for unplanned demand.
Consider whether they protect you from variability by providing alternatives. Do they represent the best brands that are more likely to have continuity and sustainability on the agenda? Do they invest sufficiently in stock to provide cover when needed? Be prepared to compensate such a partner reasonably for their capability to forecast based on your demand history with them, and to ultimately reduce your supply risk.
For planned demand, be transparent about your forecast for critical and planned items; give suppliers advance orders where possible.
Renato Martins: This is probably the worst allocation period that I have experienced in my time in this industry. I will not give away my age but I have seen my fair share of allocations in the past 20 years, so that’s saying something.
For more information contact:
• Altron Arrow, +27 11 923 9600, [email protected], www.altronarrow.com
• Production Logix, +27 31 700 4718, [email protected], www.prologix.co.za
• Projects Concern Manufacturing, +27 11 608 5210, [email protected], www.projectsconcern.co.za
• RS Components, +27 11 691 9300, [email protected], www.rsonline.co.za
| Tel: | +27 11 691 9300 |
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| www: | www.projectsconcern.co.za |
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| www: | www.altronarrow.com |
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