A perfect storm has hit the electronic components market, creating supply chain problems that will be felt for several years.
The perfect storm
Even before the COVID-19 pandemic, most electronic component manufacturers were running at 95-98% capacity.
This high demand for electronic components was fuelled by growth in technologies like automation and the Internet of Things – technologies that are only in their infancy now but will mature in the next decade.
This high manufacturing output was felt across all types of component, especially chips (semiconductors, memory) and integrated circuits. It was even difficult to get a hold of some active and passive components in 2019.
Then, in 2020, the COVID-19 pandemic hit. Car manufacturers and other manufacturers affected by shutdowns paused orders for electronic components. Meanwhile, manufacturers benefitting from lockdowns scaled up.
Now, with the development and roll-out of COVID-19 vaccines, industries that shut down have opened up again. But there’s a problem – demand for electronics has not wavered and there isn’t enough manufacturing capacity to serve everyone.
Quite simply, there isn’t enough bread to go around.
Demand is ramping up
We are now in a situation where electronic components manufacturers are running at 99-100% capacity. Demand has soared for all types of components, from chips and memory to diodes and displays. This is squeezing most supply chains.
There are so many contributors to this squeeze. Emerging technologies like AI, automation, virtual reality, augmented reality and machine learning are fuelling demand for smarter chips and data centre modernisation, while technologies like 5G and Wi-Fi 6 are demanding infrastructure rollout, which requires a significant effort.
When it comes to chips, however, cars are the biggest users. Cars can have as many as 22,000 multilayer ceramic capacitors (MLCCs) each. This will increase as cars get smarter (a self-driving taxi sounds great, but it’ll need around 30,000 chips).
Suppliers are slowly adapting
There has been years of under-investment in new foundries and plants. This under-investment has affected manufacturing capacity today.
To their credit, most manufacturers are looking to expand capacity by setting up new foundries or acquiring plants. Trouble is that most plants take years to set up. Some plants that started a build in 2017 are still being built.
Staffing is also an issue. The biggest challenge suppliers face is social distancing and COVID prevention policies, which have reduced staff numbers in many factories.
You can’t automate every process in a factory, so it is a given that having fewer staff will increase lead times. Some manufacturers have been harder hit than others with this, but all will experience staff shortages during the pandemic.
In addition to this, freight has become more challenging during the pandemic. Things are taking longer to move and there are fewer commercial flights. Global shipping rates have skyrocketed during the pandemic because of this. Higher shipping rates have contributed to price increases for most electronic components.
Weathering the storm
We predicted the electronics component shortage in early 2020 following the UK Government’s national lockdown. We knew supply chains would be squeezed and stretched due to changes in economic output and industry trends.
The best way to weather the storm is to work with us or another reputable electronic components distributor. We focus on delivering outstanding service, with industry leading quality and dependability. Call us on 01904 415 415 for a chat.
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