Component shortage in the electronics industry: "It's long past twelve"
The component shortage has the electronics industry firmly in its grip. Buyer Marcus Hartwig gives an overview of the situation and shows what companies can do now.
A shortage of the smallest electronic components can paralyse entire production lines in the automotive industry. There have already been many crises, but what is so serious about the current component shortage? And what can companies that rely on assembled printed circuit boards do now? Marcus Hartwig is Head of Strategic Purchasing at A+B Electronic: "To say it's 'five to twelve' would have been appropriate six months ago. It's already long past twelve."
Note
We published an update on the components market on 30 April 2024. Here you can find out more about the situation in 2024, production capacities and market forecasts.
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What are the problems and reasons for the shortage of components?
Mr Hartwig, there is no way around this issue. The electronics industry is struggling with component shortages along the entire supply chain. As a buyer, you have to deal with this problem on a daily basis. So to begin with, how do you assess the current situation on the market?
Marcus Hartwig: Of course, there are always ups and downs in our industry, both in terms of demand and supply. I have already experienced a few crises in my 20 years at A+B Electronic. But what we are currently experiencing is unprecedented. The main components affected are active components such as ICs, processors and memory. But passive components are also slowly following suit. And in quantities that no longer only affect individual projects or customers, but the entire range. Many component manufacturers are giving us delivery times of 40 to 70 weeks. The maximum I've heard is 75 weeks. We are already in the middle of 2022. We are in an allocation phase with many manufacturers and often receive partial deliveries after a rather indefinite period of time. The market is going crazy, there's no other way to put it.
The automotive industry shows just how serious the situation is. Even the major manufacturers are having to switch to short-time working or close entire plants because they can no longer obtain electronic components. So you can imagine what's going on in the market. After all, these are the industry's major customers. When even they can't guarantee supplies, everyone knows that the time has come.
Is the shortage of components solely due to the pandemic?
Marcus Hartwig: No, you can't say that. It's certainly the sum of many very unfortunate pieces of the puzzle. But in some areas, Covid is a kind of fire accelerator. On the component production side, there are failures and delays. Transport routes are another example. Components are transported by air in normal passenger planes, among other things. These are currently taking off much less frequently. To put it bluntly: People are not travelling for holidays, so we are not getting any components. There have also been and still are bottlenecks in maritime transport that are related to Covid.
Rising commodity prices may also be part of the problem. This is the beginning of the supply chain. Where do other problems arise?
Marcus Hartwig: Prices are a major problem. We are really having to deal with enormous price increases here. We pay a much higher price for many components. Demand is simply outstripping supply more and more. Growing segments such as e-mobility, consumer electronics or the whole topic of 5G require so many technical components that they are lacking at other ends. It's actually a simple calculation. If the supply remains the same or even decreases, but demand increases, then problems are inevitable.
And the worst thing is that many customers have not yet adjusted to the situation. There is a lack of understanding for the rising prices and long delivery times. Of course, in individual cases orders can still be realised at short notice, but in these cases the suppliers are paying handsomely for this.
What does allocation actually mean?
For most people in the industry, it's not worth asking, but for newcomers and laypeople, we'd like to explain it briefly anyway.
Allocation means something like assignment. In situations like this, the manufacturers of our components are often unable to guarantee us the entire order quantity. Instead, we often receive partial quantities that are allocated to us by the manufacturer or the distributors. Delivery dates are delayed and we lack planning reliability.
How can companies deal with the difficult component situation?
Many companies are hoping that the situation will ease soon. How do you assess the developments? For 2021 or the longer term?
Marcus Hartwig: I try to look at things realistically. And realistically speaking, the outlook is bleak. But we all have to live with the situation and make the best of it.
I don't think we'll be through with the problem at the end of the year. This problem will be with us well into 2022. That becomes clear when you look at the impact of the pandemic. What's more, many areas have been forced to lie dormant for a while during the pandemic. There will be a need to catch up. These are effects that will further worsen the situation.
You paint a rather gloomy picture. Is there any light at the end of the tunnel? Or perhaps in other words: what can the companies that rely on the components do?
Marcus Hartwig: I understand the customers' concerns. Many companies have already been shaken by the pandemic. And then to say 'Okay, I'm going to order in advance for the next 1 to 2 years to be on the safe side' is difficult for many. It's a risk assessment. Will I be able to sell my products in this quantity or will I be stuck with them?
In my view, the only way is to order as early as possible. Customers should cover all their requirements today rather than tomorrow. In other words, really everything that is visible and justifiable from the customer's point of view. You have to accept the rising prices. That's not the point in this context. It's all about minimising the risk. For us, the most important thing is that our customers receive their assemblies and can therefore also sell their own products.
It is more than time. And I can only say it so clearly again and again. Customers who don't take action now may have to endure long dry spells. Everyone has to weigh up the risks. Can I deal with such a lean period, or should I try to proactively counteract the problem by placing long-term orders?
How A+B Electronic is dealing with the component shortage
Specifically for A+B Electronic. What is the current situation in your production?
Marcus Hartwig: Our capacity utilisation is currently still in the green zone. We are now receiving many orders at short notice, which are spread over a longer period of time. We can register our requirements at an early stage and receive the components at a rather indefinite time due to allocations or delivery dates. But then we can get started immediately.
Throughout our history, we have always been accommodating with our customers' contracts. This is particularly important now. It's better to order too much and have the delivery time adjusted than to be left without any product at all.
However, we have already realised that some of our customers have understood the seriousness of the situation. And if components are missing, we liaise directly with the customer's development department. Which components can be used as alternatives? How can we tackle the problem together? We clarify this as early as possible, before the first vacancies occur. We don't leave anyone out in the cold because, after all, we are in this crisis together. We can only get out of it together.
Do you still have unmet needs in your company or are you unsure how to deal with the current shortage of components? Then get in touch with us. Together we will find the best solution for your projects.
