How to Deal with Long-Term Supply Shortages
April 28, 2021
EMS providers currently have to deal with unpredictable availabilities, prices and delivery times. How much longer will this last? What good is a high demand if supply shortages persist?
This article has been updated in May 2023.
2021's electronics buzzword of the year has probably already been decided before the end of Q2 – “supply shortage”. Companies throughout the supply chain are facing major challenges because of a prevailing pandemic, among the unpredictable fluctuations in supply and demand, difficulties in procuring various materials and scarce freight capacities.
How does this affect EMS providers' daily work?
To handle standard orders, special processes must be implemented, alternatives for components must be found more frequently and components must be requested again when the search for remaining stock was unsuccessful. This low level of certainty particularly impacts providers of electronic manufacturing services (EMS), as they often have many customers with different assemblies and therefore have to manage and order a particularly high number of components. Currently, major crises are usually prevented by constant and early consultation with customers and distributors and by finding individual solutions.
How much of a structural problem is hiding behind the pandemic?
While it is widely assumed that availability, delivery times and costs will return to normal quickly when pandemic-related restrictions are lifted, the question remains as to what will happen with supply bottlenecks. Will they be resolved as well? How much of these challenges are structural and thus require a long-term solution?
Before Covid-19, consumption and demand for electronic devices and systems were already rising steadily across various sectors. Raphael Hrobarsch, European Regional & Automotive Sales Manager at Diodes Zetex, tells Markt&Technik: “Based on the current demand situations of the various markets, as well as the fact that 5G and especially the shift in the automotive sector towards electric cars have only really started, we don't see a short-term increase in demand, but supply bottlenecks that could last well beyond 2021.”
Global supply chains are mostly trimmed for efficiency and “until we get to the point where components can be produced in stock, we will have to show more flexibility in supply chain management,” notes Georg Steinberger, VP of Avnet and chairman of FBDi, to elektroniknet.de back in 2018.
Politicians' responses also suggest that the issue of supply bottlenecks should be seen as a long-term phenomenon. The EU has announced plans to build a robust local semiconductor ecosystem by 2030. Furthermore, the US & China also indicate similar plans. However, it remains to be seen whether and in what form these plans will be implemented.
Becoming responsive despite persistent supply bottlenecks
To address the existing imbalance between demand and capacity, it is not enough to wait for the Covid-19 situation to improve or for new production facilities to be developed. Companies must prepare themselves for the fact that flexibility in their own processes will continue to become increasingly important in the future.
Fast and constant communication between teams
If different departments (especially sales, purchasing and production) within one's own organisation are always up-to-date, potential difficulties can be identified and resolved more quickly. On an intercompany level, developers and manufacturers should also contact suppliers and distributors as soon as problems in the supply chain become apparent, to be able to discuss and solve them with their customers. Innovative solutions, such as Luminovo, therefore deliberately rely on the cloud. Through the central storage of information and the distribution of access rights, it is possible to collaborate on the same document in real time, regardless of location. All people holding such access rights are also able to view the latest status at different times.
Continuous evaluation of sourcing alternatives
During the initial purchase, as well as throughout the entire product life cycle, keeping an eye on and comparing availability and sources of supply for certain components or assemblies is necessary to make the best possible decisions. However, since it is extremely time-consuming to do this manually on a continuous basis, it often falls under the table. If alternatives do not exist from the beginning and the only source of supply suddenly disappears or runs into supply bottlenecks, the possibility to quickly implement a dual or multiple sourcing strategy is very helpful. Digital tools like Luminovo can take this on. Through numerous connections to suppliers, more alternative sources can be queried, identified and delivery parameters compared in less time. If no supply source is available in the long term and the component has reached the “end of life” status, smart tools can automatically find cross-references, i.e. independently find alternatives based on the parameters of the component.
Real-time data exchange
Changes to availability and delivery times of components are possible at any time, even after they have already been selected. If already processed BOMs remain digitally connected, they can be continuously checked for critical changes in important delivery parameters to steer countermeasures early on if necessary. These real-time updates can be realised via APIs. An API (Application Programming Interface) is a part of an app, whose content and limits are precisely defined, that is made available to other apps for use. Many suppliers offer a part of their apps as an API and thus enable apps like Luminovo to automatically access and use certain information at any time. Book a demo with us to learn more.