Resisting shortage

Resisting shortage

You have certainly heard of the shortage of electronic components which causes serious issues for the automotive industry. This industry is not the only one impacted, all the manufacturers feel its effects, even small actors like ourselves. But what is it, exactly?

The shortage origins

You can probably look for the origins of this shortage in the excessive optimization of world trade, where everybody tried over the years to reduce expenses and stocks, to replenish the stocks as late as possible, by sourcing from the other side of the world where labor is cheapest, and by using the cheapest means of transportation possible.

The Covid-19 pandemic disrupted this well-established system like a grain of sand: companies and international harbours stopped working for several weeks because of sanitary regulations, other companies stopped by fear of overproducing, then all the system started again in over-drive to try to catch up and meet the demand. Then accidents happen, such as the fire in the AKM factory, to which you can add geopolitical tensions between China and the United States, which deeply modify the exchange regulations between these countries, and contribute to destabilize the whole system.

Confronted to these uncertainties, the only way for the industry to ensure that it can still produce its goods is to rebuild its stocks to cope with delivery delays which vary and lengthen to more that a year, including for components which do not yet have supply chain issues. But the generalized increase of stocks increases even more the demand and the shortage, which now can reach any component without any other cause than fear of shortage...

For components as simple as a MOSFET SOT-23, delays can reach more than a year...
For components as simple as a MOSFET SOT-23, delays can reach more than a year...

How to get through it?

The electronic industry had a strong warning in 2018, when a highly targeted shortage hit the supply of ceramic capacitors, for which order delays had then unexpectedly increased to reach almost one year. At the time, we were saved by the fact that the demand was concentrated on products sold at the lowest price. We were therefore able to fall back on capacitors with characteristics above our needs - thus more expensive - and maintain all our production. We absorbed the over-cost for the duration of the crisis and we learned from it: since them, we continually reinvested all the profits of the company into our component stocks. It was a good thing, because thanks to this we are rather well prepared. Up till now, we have had only one product suspended for a few weeks, the YoctoHub-GSM-4G, following a quantity purchase that had exhausted our stock of u-Blox 4G modules.

We are not entirely safe from a quick increase of the demand for one or another of our products, but as we design and manufacture ourselves all our electronic products in our premises, we have the advantage of mastering the entire production chain and we are therefore able to react quickly. So for the moment it's going pretty well.

Our main issue consists in managing the announced end of life of some components. We usually have one year to deal with it thanks to our stock, but it's not necessarily more than what we need when the replacement component implies a change in the footprint that require a new PCB and a series of validation tests. The famous AKM factory fire mentioned above is a typical example: our Abracon oscillators were manufactured in the AKM factory, but all the competitor products of an identical size on which we could have fallen back were in fact produced in the same factory. So we have not only to redesign the PCB for larger oscillators but also to redo all the electromagnetic tests because it's a component which has a huge impact on EMI.

For customized products for specific customers, for which orders are not as predictable as for standard products, we have to deal with delays from our providers, and above all with the non- respect of theses delays. Nowadays, its seems to have become the habit of announcing a date, then to not keep to it, giving as an excuse the overall shortage. If each market player took their responsibilities and increased their local stock, we could avoid this type of situation which is annoying for everybody. It's particularly frustrating when you receive during the Summer, with a delay of several weeks, a component which bears a manufacturing date in February, that is six months earlier...

What about pricing?

The shortage also seems to have been the excuse of choice to increase prices. Customers having no choice, some market players took this opportunity to hold them hostages. In our opinion, this is a serious mistake because customers remember and will reorganize their supply chain at the first opportunity to ensure a more stable supply. In any case for us, the regular increase in order volume from year to year enables us to compensate over-costs imposed by some providers, and we have no reason so far to increase our prices.

Lessons to learn

For our part, we are going to keep the two tendencies started in 2018: stocking and getting our supplies from providers as close to us as possible, to limit our exposure to geopolitical and maritime transport issues. And we take good note of the suppliers on whom we could count during this difficult period, and of the others...

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