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As we leave 2018 behind, it should be noted that the challenges faced by all consumers of electronic components in our industry this year have stretched teams both physically and mentally. We will continue to see pressures across the supply chain through 2019 and beyond, so there is no rest for the weary. Companies that fostered relationship growth and partnerships with the supply base when the market was tilted more to the buyer’s favor are proving to be more successful in attaining support during the current under-supply conditions. The true test of a partnership can be examined when the market is out of balance. Relationship management should not be a tool used only when convenient or in need but developed as a core tenant of any successful supply chain management philosophy.
It is highly suggested to have your supply chain management team work very closely with both the customer and the supplier base to ensure that a minimum of a full year of demand is covered. There is little to no ability for the market to absorb demand increases within this period. It is also highly suggested that you work closely with your customer to eliminate single-sourced commodity components as a single source limits flexibility in the supply chain solution. The bottom line in this type of market is you must communicate often and thoroughly to ensure your needs are not only understood but also acknowledged.
Why Are We so Challenged?
The overall electronic component market remains in a state of under-supply related to many subsets of component categories. After years of continuing pressure of decreasing prices in a range of 4–8% per year, the market finally hit its breaking point in late 2016 and into 2017. Many suppliers delayed adding new capacity expansion due to the reduced profitability driven by the continuous pressure on price reduction coupled with an over-supply market from 2011–2016. When you combine this lack of capacity expansion with greater electronic content within today’s markets and account for the expansion of all global economies, you create a perfect storm of events that has led us to the market today where long lead times, constraints, and allocations prevail.
The three following items will provide a high-level summary of some of the key constrained and allocated components.
1. Multilayer Ceramic Capacitors (MLCCs)
Due to underinvestment on the capacity side as previously mentioned, along with increased content requirements of today’s electronics, the majority of manufacturers in the MLCC space are operating under allocation rules. Even as many of the major players in this market are currently adding capacity that equates to an approximate 15% increase in output, the market is projected to remain allocated through 2019 and into 2020. Book-to- bill ratios are still running in the range of 1.5:1. Suppliers have also instituted price increases that range from 9–300% effective on all new deliveries after their respective increase announcements. These manufacturers have eliminated special contract pricing to franchised distributors as well, leaving them to buy at book costs, which is causing price increases in the range of 20–500% to the market. Some manufacturers are setting pricing at the end of each month, quarter, or as material becomes available.
2. Thick- and Thin-film Chip Resistors
Much like the underinvestment seen in capacitors on the capacity side, thick- and thin-film chip resistors fall in the same situation. Along with increased content requirements of today’s electronics, the majority of manufacturers in this space are operating under allocation rules. Bookings continue to exceed output with no improvements seen into 2020. Price increases began in November 2017 and persisted through the summer. Increases range from 10–25%. Distribution is also forced to buy at book prices, which inflates prices to their customers.
3. Power Discretes, Mosfets, and Diodes
Raw materials for the backend have had a profound effect on component availability along with delayed capacity expansion within this commodity space, increasing demand, and availability of backend, package, and test capacity. Lead frames and packaging materials also have long lead times or are allocated. Most manufacturers in this space delayed capacity expansion until it was too late to react. Lead times range from 30–52 weeks to allocation depending on the manufacturer and component. There has been significant investment in capacity expansion; however, availability of electronic equipment has slowed the deployment. The new capacity is projected to begin making a positive impact sometime in mid-2019. Price increases have been seen in the 5–15% range.
To read the full article, which appeared in the January 2019 issue of SMT007 Magazine, click here.