Chip shortage to usher in transformative design-procurement-supply chain partnerships
Since Avnet surveyed its customers in late 2021 about their challenges with the component shortage, the industry is making slow progress to finding an end to the current constraints.
But when we do get there, the electronics engineering world as we know it will be fundamentally changed and stronger partnerships will be formed with procurement and supply chain experts.
The crunch is not due exclusively to a temporary lack of availability of specific components. The demand for electronic content -- in everything from automobiles to light bulbs and beyond -- is on the rise, with no end in sight. Component suppliers are expanding capacity yet supply and demand are still out of balance for the thousands of electronic components we rely upon daily.
What we’re experiencing now is unlike anything that has come before, with an impact that will affect every aspect of our lives.
I think we’re going to come out of this situation with two major shifts in mindset:
- Inventory will be considered more of an asset, not a liability in the manufacturing process
- The design process will extend well beyond the board -- with procurement and the supply chain as fundamental to component selection
Chip shortage deconstructed
A major finding of our inaugural Avnet Insights survey, “Deconstructing the chip shortage,” is that the global component shortage is not merely extending order fulfillment and lead times. It is also having a ripple effect on product design, prompting design engineers to explore new ways to get their products to market.
Some of the key takeaways of the survey, conducted among 530 global engineers and made public on March 1, are:
- 75% of respondents say access to electronic components is a significant challenge.
- 93% have experienced a major impact on longer lead times.
- Designers are seeking additional routes to source parts including spot market brokers.
- Most have significant concerns about counterfeit control.
- 64% say they are designing more based on availability of the components rather than preference.
Components access remains a challenge, and most of the survey respondents expect it to get worse
Seventy-five percent of engineers who responded to the survey said they face significant challenges accessing electronic components. Engineers in the telecommunications industry, in particular are feeling the strain, with 83% of respondents reporting significant challenges.
Among those who have experienced a significant impact due to the chip shortage, 93% say longer component lead times are the top challenge. Respondents also say they experienced major impacts in delayed production schedules (74%) and higher prices (72%). And while the specific impact varies by industry – those in the telecommunications, aerospace and electronics industry are most likely to see an impact on pricing, for example – there are consistencies, especially as it relates to future expectations.
And there are more challenges likely to come. Among respondents who reported delayed production schedules, 75% experienced a slippage of less than six months. But a strong majority of all respondents expressed concerns about lead times getting even longer and prices rising even higher (96% each) in the next year and a half.
Distribution partnerships add value beyond the Bill of Materials (BOM)
Engineers realize they must be flexible in approaching their designs from the start, hedging against the potential need to shift to alternative components and suppliers along the way. Designers must develop a deeper understanding of procurement and supply chains and become more closely aligned with those functions. Doing so will help engineering teams be ready to pivot quickly if necessary, ensuring their business is sustainable for the long term.
The automotive market is an example of how an established industry must pivot to stay relevant. There were approximately 300,000 EVs sold in 2020 and 35 million projected to hit the roads by 2030, according to industry estimates, driving a rapid pace of change. As EVs scale, we don’t have the infrastructure to support charging them. This lack of EV charging capacity may delay EV growth. The industry now needs to pivot and start building out the infrastructure, aided by the $7.5B in U.S. government funding recently approved for 500,000 EV charging stations. Getting there will consume even more of the available electronic component capacity available in the market.
That’s where a strong, singular distribution partner really helps customers drive value through an integrated design approach. With one partner that can marry extensive design expertise with data-based insights, engineers can look beyond the board and select components in a way that enables them to stay flexible and agile, ready for whatever disruptions may lie ahead.