Navigating Supply Disruption: Lessons Learned From The Passive Components Market

Instead of relying on a single source, it’s crucial to build a diverse network of suppliers to ensure supply continuity.

The January earthquake in Japan greatly impacted passive component manufacturer Murata, causing lead times and pricing for fixed inductors to spike. This illuminates a harsh reality: that an event impacting one manufacturer can have a ripple effect across the entire industry.

The state of the passive component market

Although active components, like diodes and transistors, tend to get most of the limelight in the electronics industry, passive components, such as resistors, inductors, and capacitors, play an equally important role. Several factors impacting the market for active components, including a shortage of raw materials, capacity constraints, and geopolitical tensions, are also influencing the passives market.

The consumer electronics sector continues to expand, with phones, tablets, and wearable electronics demanding more and more passive components. The same applies to the ever-growing telecommunications sector, which relies on advanced passives to drive 5G networks, the Internet of Things, and expanding wireless infrastructure. The electronification of the auto industry has also opened a huge growth area in the passives market.

This is an exciting time for passive manufacturers, who stand to make significant gains if they can innovate and expand to meet the growing demand for passive components. But the more demand surges, the more disruptive it can be when the unexpected strikes.

Lessons learned from Murata

This vulnerability became especially clear in the aftermath of the magnitude-7.6 Noto earthquake that struck Japan’s Ishikawa prefecture on New Year’s Day. The affected area housed several semiconductor manufacturers, including passive component leader Murata. Many companies experienced delays after the quake as they grappled with injured workers, damaged equipment, and utility outages.

For instance, the Kaga Toshiba facility was shut down for over a week, and Sanken was forced to delay production for over a month. Murata’s Anamizu factory was among the worst impacted, with a five-month delay (production is slated to resume in May). Now, with prices for Murata’s inductors steadily increasing and lead times stretching up to 46 weeks, OEMs that rely on these products are already feeling the effects.

This highlights the fact that many of the world’s leading electronics manufacturers are located in the same geographical region. Major players in the passive component space include Vishay and Kemet in the US; Tageo in Taiwan; and Murata, TDK, and Kyocera/AVX in Japan. Note that half of these companies are located in the same country (Japan), and two-thirds are in the same region (Asia).

Semiconductor manufacturing has long been disproportionately distributed across the globe. Recent events like the Russian war in Ukraine have underscored the risk of relying on a small number of manufacturers in narrow geographical regions. In response, chipmakers have begun moving some of their factories or building new fabs in different areas. But diversification is a two-way street. While manufacturers work to mitigate their vulnerability, OEMs should build diversity in their supply chains to better prepare for market disruptions.

How to build a diverse supply chain

OEMs learned long ago that building redundancy into every single part simply isn’t feasible. A better approach is to prioritize key components: Determine which products are most vital to keeping production up and running, then find pragmatic ways to ensure a robust supply of these must-have parts.

To this end, companies have grown accustomed to paying premium prices, signing long-term purchase agreements, or making hefty prepayments to secure the parts they need. These approaches may help ease day-to-day supply chain struggles, but they won’t afford much protection when an event like the Noto earthquake hits the factory. The current passive components market has shown that more diversity is needed.

Finding multiple sources of supply is the best way to build a resilient supply chain that can adapt to sudden disruptions. In the past, maintaining an array of suppliers was often seen as an inefficiency—but with supply chain disruptions on the uptick, it’s now just another part of doing business. Having another source, especially one with a global presence, can be a lifesaver when the unexpected happens. But qualifying a new supplier takes time and resources, so it’s critical to assess your parts list and determine which components warrant this strategy.

Maintaining multiple suppliers will pay other dividends, too. The wider your network, the more data you can collect and the better you can predict market disruptions. The stronger your relationships with suppliers, the better they’ll understand your needs and be able to find creative ways to keep your production on schedule. It’s well worth taking the time to build a network of trusted suppliers—or to find the right global sourcing partner that already has a robust network in place.