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What’s Happening with Component Lead Times?

by maria
gawdo

By Simon Whatley, Supply Chain Manager- Electronics Manufacturing Solutions (EMS)

https://emsolutions.uk.com/whats-happening-with-component-lead-times

As anticipated at the end of 2020, the global semiconductor shortage is continuing to impact manufacturing lead times all over the world. Even though June is just around the corner, electronic manufacturers are still experiencing substantial supply disruptions, with lead times getting longer by the day.

Although COVID-19 exacerbated the supply issue, there are several elements to the disruption, which we’ve covered below.

A global issue

As it stands, lead times for semiconductors, or ‘chips’, are roughly one year out from where they should be, with lead times sitting at between 16 to 50 weeks. Chips form the base of all electronics — from medical devices and networking equipment to large machinery and even cars.

The increasing lead times apply to both onshore and offshore manufacturing. With a substantial proportion of electronics manufactured in China, the Chinese economy is still recovering from the damage of COVID-19. In the Far East, demand massively outpaces capacity — meaning more builds are being pushed into Europe and the UK.

The chip shortage has caused mass disruption to car production in the automotive sector, with notable industry players such as Ford, Volkswagen and Toyota all reporting they’ve had to scale back output. Other manufacturers have already advised that it’s likely they’ll fall short of their 2021 targets. Many assembly lines that were shut over the pandemic were unprepared for the strong demand for new cars in the final quarter of 2020.

The outbreak of COVID-19 caused rifts and set back production in nearly every industry. However, unrelated supply-chain disruptions in 2020 meant that the shortage was inevitable, and the pandemic was merely a catalyst. Transportation has also contributed to the deficit. With added constraints on travel, shipping freights are running at a reduced rate, and the airfreight system is experiencing exceptional demand due to global shipments of the COVID-19 vaccine.

The surge in demand for consumer electronics has been the primary driver behind the shortage. Electronics manufacturers have been working at full capacity to produce sufficient chips for PCs, servers and other consumer electronics to meet the staggering demand. Now that demand for new cars is on the rise again, the facilities are simply unable to cope. What’s more, new cars are increasingly resembling electronic devices as carmakers prioritise electric vehicles. As such, the automotive industry is facing the demand of all other sectors.

So, what issues need to be addressed to ensure the industry isn’t faced with this kind of dilemma again?

The root of the problem

The severe lead times can be attributed partly to the manufacturing sector’s lack of diversity. The world lacks major manufacturing centres for components. The larger facilities are inundated with demand, that of which smaller centres would be unable to meet. As a result, companies relying on a centralised manufacturing base can’t procure the components they need in the event of world-scale supply chain disruptions.

Additionally, electronic products have shorter lifecycles than ever before. Rapid advances in technology and regular shifts in consumer behaviour mean manufacturers are hesitant to invest in longer-lasting products.

Today’s global supply chain is a double-edged sword for electronics manufacturers. On the one hand, it’s easier than ever to find cost-effective components from emerging suppliers. On the other hand, maintaining a complex web of suppliers puts manufacturers at greater risk of experiencing shipping delays and tariff challenges—forcing them to scramble to find essential components to avoid production delays.

The UK electronics manufacturing industry is facing an unprecedented situation. While the supply chain stabilises, forward orders will be critical for securing sufficient product for the rest of 2021 and into 2022.

What does the future look like?

To cope with dramatic changes in demand, the world needs a more diverse supply chain. If electronics manufacturers can diversify their supply chain away from overcrowded locations and bring it closer to home, demand is likely to level out.

When the manufacturing capacity is spread over a broader geographic footprint, the risk to manufacturers is reduced. Sourcing locally also reduces the risk of operating on an international scale, such as shipping delays and border tariffs.

Implementing a consistent plan and forecasting against various ‘what-if’ scenarios will be vital for manufacturers to stay on the top of their game going forward, particularly as some reports suggest that the issues will continue throughout 2022 and 2023.

As such, we urge our customers to get ahead of the game by putting demand in place wherever possible to reduce the disruption. With the market so volatile and manufacturers making last-minute decisions and changes, it’s a huge challenge to plan for the unexpected. However, having orders already in the pipeline will help immensely.

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