For electronic manufacturers, failing to secure much needed parts in a timely way is a real-world nightmare. Let’s look at a handful of strategies that combat long electronic component lead times.
Increasingly long electronic component lead times have been plaguing the electronics manufacturing community for months, if not years. The bad news: it’s a trend that is likely to continue for the foreseeable future. The good news: there are strategies that can strengthen your organization’s sourcing stance and mitigate shortages.
No end in sight
Uncertainty is an ongoing reality in the current manufacturing landscape. COVID-19 will likely remain a leading cause of sourcing slowdowns for the electronics industry. A new administration guiding U.S. policy puts tariff and trade concerns on the radar — and the trade war between the United States and China will continue. Dimensional Research writes in the Jabil-sponsored report, “Supply Chain Resilience in a Post-Pandemic World“:
Supply chain complexity is at an all-time high. Component shortages are causing constraints and affecting end-of-life, which means a two-cent component can spark line-down issues. Supply chain managers have to contend with trade disputes, climate change, macroeconomic shifts and natural disasters. They often lack advance warning before an effective supply chain is rendered inefficient.
At the same time, economic activity in the manufacturing sector overall is up for the eighth consecutive month. In the recent December report from the Institute for Supply Management (ISM) Manufacturing report, overall manufacturing registered at 60.7%, up 3.2% from November. New orders reached 64.8%, up 4 percentage points from the previous month. In fact, computer and electronic products experienced moderate to strong growth, according to Tom Fiore, chair of the ISM Manufacturing Business Survey Committee.
Business leaders agree. “Business is stronger than expected, with higher demand for many products,” said one survey respondent in the electronics sector. “Volatility continues due to the very persistent pandemic and associated risks.”
Learning electronic component lead-time basics
Component makers may need weeks or even months to get a component from raw materials into the hands of the customer. Consider the components of lead time from the Corporate Finance Institute, CFI.
1. Preprocessing (planning) time: Time taken to receive a request for replenishment, understand it and create a purchase order (when buying an item), or create a job in the case of a manufacturing firm.
2. Processing time: Time needed to procure or produce the item.
3. Waiting time: The lag caused by procuring items to when production starts.
4. Storage time: The time items sit idle in a warehouse or factory awaiting delivery.
5. Transportation time: Time necessary to get produced item from warehouse/factory to customer.
6. Inspection time: Time used by customers to ensure product meets specification and/or deal with non-conformity.
A variety of external factors can contribute to long lead times, as spelled out in this article by Titoma, a company that optimizes electronic design for manufacturing with best-value Chinese components.
- Increased demand due to new categories of product.
- Allocation that limits access to smaller customers.
- A component maker focus on higher margin components.
- Market uncertainty causing stockpiling of raw materials or end products.
- Market changes in price and availability of raw materials.
Building safety through partnership
Electronics manufacturers need to work with key sourcing partners to ensure product availability of key components in the coming months. Here are five areas where your distribution partner can help limit lead time variability:
1. Design with long electronic component lead times in mind
As early as possible in product design, consider availability and lead time risk for key components. Delay locking in component choices until later in the process. For example, create two PCB layouts in early product planning and evaluate which is best in terms of availability and price later. A distribution partner can help identify components that may present lead-time hurdles, giving you an opportunity to find alternatives that are more accessible. With a broader base of suppliers and access to equivalent parts, you can smooth over potential rough spots.
2. Leverage Vendor Managed Inventory (VMI)
A strong distribution partner has purchasing power and network connections to source in-demand parts. By buying products in bulk and storing them across global warehouses, distributor partners can offer VMI programs that ensure that products are available when and where they are needed. These programs support the automatic replenishment of stock, avoiding stockouts.
3. Buy components early
As soon as a bill of materials (BOM) or prototype of a product is done, source all critical or potentially hard-to-get components. Focus on those with the longest electronic component lead times. Since this strategy can be risky as the market and the product shifts, it should be reserved for critical projects.
4. Embrace communications transparency
Build a bond with a key distribution partner and stay in close contact. Share sales forecasts early and often so they can deliver to true demand. Manufacturers can work with their manufacturing customers to build a plan for regular, recurring purchases that allows a steady stream of parts into the factory.
5. Look for unnecessary lag time
Every process can be improved. Distribution partners can help identify more localized sources or faster shipping methods to shave time from getting components in hand.
To summarize: Although longer electronic component lead times are common, working closely with a distribution partner can shorten the time it takes to get critical components from the supply chain to the factory.