What’s driving the global demand for electronic components?

There’s been much discussion in recent months about the increase in the global demand for electronic components and the undeniable effect that this is having on the lead-times of manufactured products.

The past twelve months in particular have seen an exponential increase in demand for electronics components.

The result? What has been described as the biggest epidemic of component shortages across supply chains for more than a decade.

Currently it’s not uncommon for the lead-time for supplies to be stretching more than 30 weeks with a number of manufacturers including Yageo, Micron, Panasonic and STM all offering extended lead-times. 

And it would appear there’s no short-term relief in sight, with industry experts predicting supply problems to continue well into 2019 and beyond.

So what's been driving this demand for electronic components?

And what can Original Equipment Manufacturers (OEMs) and Electronics Manufacturing Services (EMS) providers do to ensure that they're supported in the future?

The impact of new product development

A significant contributor to the scarcity of components has undoubtedly been the unprecedented growth in the mobile, automotive and industrial markets and the explosion in the Internet of Things (IoT).

The release of any new device or product inevitably provokes a spike in consumer demand, which in turn places pressure on the manufacturers of essential electronic components. And after many years of relative stability, it would appear semiconductor manufacturers in particular have been caught off guard by not making the necessary investments to enable them to respond to the surge in demand and up their production capacities.

When multiple companies are fighting for the same limited supply of products then it stands to reason that franchise distributors and component manufacturers are going to seek to prioritise the needs of their most valuable clients first.

But what's also become clear is that no one is immune.

Even technological giants like Apple have fallen victim to the effects of what they described as ‘supply constraints,' with their own market share taking a widely-publicised hit last year following the announcement of the delayed release of their iPhone8.

The automotive industry is well-used to sporadic production shutdowns, and often for months at a time, as they handle shortages in microchips and other components.

Technological developments within the automotive industry have also had an undeniable effect on electronic component supply, as automobile manufacturers look to add innovative new electronics-based products (sensors) such as advanced driver assistance systems (ADAS) into their vehicles. 

And then of course there's the IoT - from wearable products, smart meters, intelligent cars through to smart cement - all have some element of electronic componentry at their very heart.

Safeguarding your supply chain

So the question is then: what should OEMs and EMS providers be doing to safeguard their own supply chains and to ensure they're able to get the parts they need when they need them?

If you're an OEM and you've opted to outsource your entire end-to-end electronics manufacturing process, then the onus is firmly on the shoulders of your EMS partner to manage any supply issues on your behalf.

They’ll have built strong relationships with the right distributors and they’ll have robust supply agreements in place which should enable them to access good levels of stock when they need it the most. 

In these times of component scarcity, it’s also going to be even more crucial to prevent suspect or counterfeit components from entering the supply chain.

Your EMS provider will, of course, have strict processes in place - from painstakingly selecting and auditing their suppliers, to creating and managing a reference database and thoroughly inspecting all components on receipt. The best companies will insist on a two step inspection and verification process, one of which is carried out by the component supplier prior to shipment and then one again when the parts have been received by the EMS provider.  

Finally too, you can play a vital role in supporting your EMS partner by responding quickly to any price or lead-time issues, by asking your own engineering team to suggest alternative components where possible and by sharing your demand forecast as far in advance as possible.

An Introduction to Outsourcing Your Electronics Manufacturing

Written by Daniella Baldock

Daniella is an experienced strategic sourcing specialist with over 12 years’ experience in the electrical and electronic manufacturing industry. Daniella’s core skills include negotiation, communication, supplier relationship management, and purchasing negotiation. Graduating from CIPS - The Chartered Institute in 2018, Daniella is a driven purchasing professional who plays a crucial role in driving ESCATEC's European sourcing strategy.