Not Another Supply Chain Blog!
I’m certain that most people reading this have already been bombarded by numerous articles about the state of the global supply chain. And whether it’s for electronic components and semiconductors, or bikes, or lumber, or automobiles, the supply chain disruptions have been felt across numerous industries all over the world.
So, why then am I writing yet another article about the state of the global supply chain? Really it’s two-fold: first, MMB’s Director of Sales and Strategic Marketing keeps reminding me that as the companies we’re engaged with around the world continue to grapple with the situation, it remains a very timely and relevant topic. Second, after speaking with a family member about it, I’m convinced that everyone seems to have an opinion on it, but few people outside of electronics have a grasp on what’s happened, and continues to happen, and what mitigation strategies exist to get around it.
So, here then is what MMB Networks did (and continues to do) and why we feel we’re as well positioned as anyone in the industry.
What Happened Again?
The short story is that when the pandemic began to take hold in March of 2020, many product manufacturing companies reduced their production forecasts. The assumption at the time was that demand for products would fall as many viewed the economic impact of the pandemic would come with dire consequences with job losses and soft consumer spending. This coupled with stay at home orders in many countries around the world meant that many manufacturing plants ground to a halt.
Then, consumers everywhere decided on some good ol’ e-commerce retail therapy as a means of spending all of their newfound expendable income as many activities, restaurants, and other means of entertainment were shuttered. Further aggravating a tight supply chain, was the demand for electronic devices as millions around the world were forced from office buildings to their home offices.
This meant that just as the manufacturing world slowed down, demand went way up. As orders began to come in again, those same manufacturing facilities had to then try and spin up operations to meet demand – this is not a feat that would be characterized as “fast”.
In addition to the time it would take to bring things back online, the queue was reset as new orders came in. This then pushed all of the regular consumers of electronic components to the back of the line as they scrambled to rescind their order cancellations. This has been felt by many product manufacturers around the world, both large and small.
Nowhere was this product/component constraint more evident than in the Semiconductor industry.
Be Flexible and Take Immediate Action
We started feeling the knock on effects of tightening semiconductor supply by late summer of 2020, months before President Biden signed his executive order in February of 2021. At that moment, we evaluated all of our options and leapt into action.
What options might you be asking?
Pull in Orders: We started by informing customers that lead times were pushing out and to think about pulling in orders to fulfill their forecasts. At the same time we worked with our supply partners to secure important supply while placing significant orders for components we deemed to be at significant risk of disrupting our customers’ ability to ship products.
Think About Design Changes: Next, we looked at design changes and optimizations to see where replacements could be used if at all possible. We do this as a general practice for all of our products, but we quickly took a deeper dive to see what else could be done.
Try the Spot Market: Where we saw market constraints, we secured components via brokers on the spot market. Yes, in some cases we paid 2 or 3 times the usual price. We felt that the situation was going to get much worse before it got better and so we paid those prices to ensure we could continue to deliver on our promise to our customers. And, as we check those same channels today, prices are now 5 or 10 times the usual price, and for many components the secondary market has completely evaporated.
So if you haven’t already taken action to mitigate your risk by pulling in orders, optimizing your component set, or taking a look at the spot market- do so now! You’ll be thankful later down the road.
Stay the Course and Continue to Bet Big
Since October, some industry analysts have promised it would only be “a quarter or two” of disruption, and some said “maybe first half of 2021”. However, we felt that nothing was going to change the situation in the near term, and in fact all signs suggested it was going to continue to get worse.
Leveraging our collective experience in the industry, as it currently stands we believe that the situation is not going to get materially better until 2023. Of course, some portions of the industry and some technologies may improve before then, but we feel this is going to be limited.
So, we continue to focus on ensuring that wherever possible we’re providing forecasts and placing orders out for at least the next 12-15 months. This is because today, most semiconductor lead times are in excess of 12 months, and that assumes you actually receive some of the very limited allocation.
“No-one can really predict when this will end.”
No Quick Fix but the Future is Bright
Not many would have predicted the past 16 months and the impact on the entire Global Supply Chain. To try and avoid future scenarios that would see similar levels of disruption, there are a number of major manufacturers (and the US government) that are pumping Billions of dollars into infrastructure to build new fabs to produce more semiconductors.
While this is necessary for long-term stability, this won’t have an immediate impact on the current situation. Semiconductor manufacturing is one of the most complex types of manufacturing on earth. Building new factories, or adding capacity for assembly and testing takes time (usually 18-36 months for advanced node types).
Boom then Bust, then Boom Again
No-one can really predict when this will end. Most manufacturers are continuing to push out lead times, and they are continuing to receive more orders than they’re able to ship. This leads to an ever increasing backlog that will surely continue to extend delivery times even further out into the future. In order to secure supply, some companies order through multiple channels, and of course, all of the shortages bring opportunities for speculators and brokers.
At some point, as has happened in prior semiconductor boom-bust cycles, there will be a very sudden and dramatic change. The supply will come on-line as the demand begins to soften, which will expose speculators, brokers and double ordering. No-one can predict when that will happen, and it’s likely to occur at different times for different components based on a myriad of factors.
Until that happens, the team here at MMB Networks will remain focused on quick action to further understand customer needs, designing with the intent of minimal supply chain disruptions, and working with our key supplier partners so that we can continue to secure components and deliver our products in a timeframe that ensures our customers’ success in the marketplace.
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