Component Shortages: Good Things Do NOT Come to Those Who Wait

Posted on October 02, 2015
by Toby Klusmeyer

When a supply chain disruption occurs, you usually hear someone say, “How can that happen (plus a few more choice words we can’t mention here)?”
 

With so many players in the supply chain, the chances for disruption increase exponentially. Whether yours is a New Product Introduction (NPI) or a reorder for an existing product, the best strategy is to think ahead.
 
Engineering
To do that, you must understand what to look out for, and that means understanding who the supply chain players are and what can go wrong at each level.
 
Broken link #1. Your Contract Manufacturer isn’t a good partner
 

Do you have a great partnership with your Contract Manufacturer? And what does that mean, anyway?

The right partner will jump through hoops for you in ways you might not be aware of. They communicate with you in timely manner, even when things go wrong.
 

Picture this: it’s the day you expect your PCB Assembly to arrive at your dock, only to find that it didn’t. You call your Contract Manufacturer and they tell you about some component lead time issues that prevented them from delivering and, oh, by the way, it won’t ship for another week.
 

Do you feel the steam coming out of your ears? What kind of partnership is that?!!
 

Here’s the solution: have an ongoing conversation with your Contract Manufacturer. Make sure your communications go two ways: 1) they talk to you regularly and work with you to solve problems, and 2) you tell them what your problems are and work out the solutions together.
 

Be brave and make some bold estimates for what your demands will be and if the Contract Manufacturer is good, they will creatively resolve many of your price and delivery challenges for you.
 
Broken link #2. The OEM allows a product to become obsolete
 

Now let’s think about the Original Equipment Manufacturer part of the supply chain. Let’s say an OEM makes a robotic lawnmower. An OEM will make the production of that lawnmower stretch in the marketplace as long as they can, that is, until parts become obsolete.
 

That obsolescence issue usually falls at the feet of everyone involved — from the guy who can’t get a part to fix his mower to someone like me, the Contract Manufacturer.
 

Fortunately, the OEM has me, the Contract Manufacturer with an electronic design team. We keep our OEM customers informed about up-and-coming obsolete component issues and can recommend and perform design changes to the product. This way, the end of life is extended until a newer product line is presented to the market.
 

Demand can change with parts on any given day. It’s critical that your Contract Manufacturer is aware and communicates these issues to you as they arise so that you don’t end up empty handed, or have to deal with obsolete parts after it’s too late. This kind of partnership is key to everyone’s success.
 

We would rather communicate too much with our supply chain than not enough (see our blog on 6 Communication Steps that can help you).
 
Broken link #3. Your Distributor runs out of stock and you pay the price
 

Distributors run out of stock because they don’t anticipate their demand. It’s that simple — or is it?
 

Distributors can only plan for what they know and it’s their partnership with Contract Manufacturers that can prevent disruptions in component availability.
 

Communicate well with your Contract Manufacturer and tell them what your product demands are — even if they are only estimates. This way, plans can be made to help regulate component price and delivery.
 

Imagine this: you get a sudden spike in orders. You call your Contract Manufacturer and say, “I need product now.” Without any plans in place, they call up their Distributor only to find that there is no stock. Your CM calls another Distributor and finds that there is stock but… now the price is 30% more.
 

Who pays for this? You do, that is, unless your Contract Manufacturer has great relationships with many distributors — as we do.
 

Nonetheless, this spike-in-orders scenario demonstrates that planning can go a long way to prevent hiccups in the supply chain for price and availability — and your ability to supply product to your end customers.
 
Broken link #4. Your Component Manufacturer has different priorities
 

Do you remember in the early 2000s when the demand for cell phones exploded and suddenly tantalum capacitors disappeared from the planet? Everyone in the supply chain was scrambling and hoarding what they could to supply their product. Distributors and Component Manufacturers simply ran out of stock.
 

Okay, some of you youngsters may not recall this, but this is just one example where unanticipated spikes in demand wreaked havoc in the electronics industry. It happens all the time in big and little ways and for different reasons.
 

So, here’s what happened with that whole tantalum shortage. The Component Manufacturers suddenly became God, and you know very well that God rules. Only those Contract Manufacturers with great Distributor relationships who knew how to plan and forecast their demands were able to stay in the game.
 

Component Manufacturers only had so much product and they set the priorities. They doled out their supply to their best partners. Meanwhile, everyone else had to wait in line to fill orders.
 

Are you communicating effectively and creating a great partnership with your Contract Manufacturer? Are they, in turn trying to do the same for you? Disruptions happen and when they do, a good partnership with your Contract Manufacturer will save the day.
 
Proactively working the supply chain is key
 
As a Contract Manufacturer, we regularly review a list of customer parts to see if there are issues. Next, we send a quarterly report to that customer. Furthermore, we have great relationships with our Distributors so that we have this information available at our fingertips — so that when push comes to shove — they can help us get out of a jam.
 
We look at all the parts we need for our customers’ products, and periodically review and identify whether supply chain issues have come up. In fact, we do this with all parts even if we don’t have a customer’s order on hand.
 
Why? Because the main way to avoid disruptions is to understand how the whole supply chain works, to know where problems can usually occur, and to know how a good Contract Manufacturer can use ongoing communication to avoid the pitfalls, disruptions and long lead times.

Tags: Lead Time Supply Chain

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