Component Shortage

It’s the busiest time of year for consumer shopping, but the continued electronics component shortage might throw a wrench in any plans to snag gifts off the shelves of your favorite store this holiday season. 

MLCC Shortage Could Cause Some Shelves to Sit Empty

Feel like the popular electronics are selling out faster than ever? As the passive component shortage continues to weigh heavily on manufacturing and electronics, MLCC (multi-layered ceramic chip capacitors remains one of the top sought-after components. The MLCC shortage alone led to a limited supply of consumer products on store shelves, putting companies and consumers in a bind during the busiest shopping season of the year.

Related: The Passive Component Shortage Demand and Impact on Industry

Market Demand from Last Christmas Prompted Current State

In late 2017, market demand for several electronics components surged and soon this demand exceeded supply – just as the holiday season commenced. Since then, the increase in demand combined with limited overall production capacity resulted in a component shortage that worsened throughout 2018. Major contributing factors included electronics such as popular computers and consoles, mobile phones, and automobiles.

Manufacturers rushed to meet demand – especially for the continuously evolving and technologically-advanced features in automobiles, including the shift toward technology that focuses on self-driving, or autonomous, vehicles, ADAS, vehicle-to-vehicle communications, onboard safety, convenience, environmental features, and continued interest in electric vehicles.

The demand continued to deplete supply, leaving manufacturers and companies who did not hold a large share of supply – companies like Samsung and Apple, who purchase a vast majority of this supply for mobile phones that change every year – wondering whether they’d be able to meet consumer demand.

Related: Will Supply Ever Catch Demand?

The Current State of the Component Shortage

As a result, manufacturers have begun to build more capacity for production, but others, wary of what has transpired during a similar situation in the past, have remained hesitant. Some manufacturers have even increased prices or have labeled many products and parts as “TBD” pricing – simply because they don’t know the true cost until it arrives.

Although the shortage is still going on, the outlook for automotive electronics remains robust, with forecasts revealing increases in sales for 2018 and 2019.

Related: Why Domestic Manufacturers are the Best Option During the Component Shortage

High demand and tight supply continue to loom over the industry. Lead times remain long, but the shortage shouldn’t last forever. For now, ensure you’re up to date on what’s happening with the component shortage and don’t try to wait it out. The decisions your company makes now will impact longevity and success.

If you have questions regarding orders, supply and more, contact us now.

Lead times for scarce components continue to grow as a result of the demand from high volume consumer market – partly due to society’s continuous infatuation with the newest smart gadgets and companies’ continued manufacturing of the latest and greatest products.

How can all of the electronic components be consumed by many small gadgets? To put it in perspective, a brand new smartphone can include up to 1,000 of these tiny components that are becoming scarce as the competition for consumers’ attention and money heats up.

Despite the widely talked about the shortage, manufacturers were (and still are) hesitant to add more capacity. In the beginning, there looming suspicion led them to question where the increase in demand was real and they’ve learned from harder times that this solution doesn’t always work out in their favor, so many continue to ride out the shortage for as long as it will take them. Lead times for some components are several months long – some even a year – and the shortage for specific parts, such as MLCC continue to impact the industry in big ways.

Now, prices are starting to increase due to the impact of these shortages – and the impact that tariffs have had and will continue to have on the industry. With the uncertainty wavering, questions continue popping up: why isn’t capacity being added? How far will prices go? How did we get here and when will it end?

With the tightened market in such a volatile and fragile place, it’s incredibly important to keep a high level of transparency with your vendors and your customers.

1. Sudden Change is Hard to Accept

Unless you’re in the very core of this shortage, it can be hard to wrap your brain around how something is always available and suddenly the supply disappears. Change is hard to accept in any circumstance, but especially when your product or business relies on it. Transparency during this time is crucial because change can be hard to understand. Ensure you communicate clearly and as honestly as possible with those affected – vendors, customers, etc.

2. Going Dark Could Hurt Relationships with Vendors, Customers

With no new changes in the ongoing component shortage, sometimes you just don’t have a lot of information to relay – but that doesn’t mean your communication should go dark. Staying in touch with customers, vendors, and other stakeholders can ensure your relationship remains in a positive place – no matter what is happening in the industry.

3. Transparency Encourages Proactivity

Honesty and transparency are key to retaining a positive relationship with your external stakeholders. In many ways, the goal of being transparent with your customers and vendors can encourage proactivity in relaying messages and communication with them. This is beneficial to any business in that it keeps them ahead of the curve, instead of being reactive when things go awry.

4. It Keeps You Relevant Amidst Industry Chaos

Between the electronics component shortage and tariffs on products from China, it’s easy to understand how your brand can be forgotten amidst everything happening. Not to mention, communication and transparency can be heavily weighed when choosing a manufacturer or supplier. Maintaining consistent communication can also open up the opportunity for your business to become a source for news and information in the manufacturing industry, further contributing positively to the relationship with stakeholders.

From topics like the component shortage to tariffs at the forefront of the manufacturing industry, the decisions you make now will affect your company’s longevity and success. If you have questions regarding orders, supply, and more, contact us now.

For months, the biggest brick wall in the manufacturing industry has been the shortage of electronics components. Now, the major focus has slightly shifted to the tariffs on imported parts and products – and how the tariffs have major effects on the manufacturing industry.

The latest round of U.S. tariffs is a 10 percent levy on $200 billion worth of Chinese goods, set to rise to 25 percent on January 1, 2019 – on top of the $50 billion worth of tariffs on Chinese goods that already went into effect in August. With tariffs now in effect, we’re no longer left wondering what if – but what impact will this have on the manufacturing industry and electronic components.

1. Production could shift to the U.S.

While a large purpose of implementing tariffs on goods from China was to encourage reshoring and to benefit companies with production in the U.S. by making their products and services a more affordable option, compared to foreign counterparts. With the new tariffs in place, companies could act on one of a few options to remain competitive.

The first option that companies have includes shifting production to the U.S. Instead of relying on contract manufacturers overseas, companies should opt to partner with a reliable manufacturing partner closer to home.

2. Tariffs could impact the electronics component shortage

It should come as no surprise that tariffs could alter the ongoing component shortage within the industry since tariffs imposed occur directly on many electronic components at the center of the shortage. The tariffs include a wide range of products used in printed circuit board assembly, including, but not limited to: capacitors, resistors, fuses, relays, switches, transistors, LEDs, diodes, integrated circuits and more.

With these components impacted by the tariffs, we could see less demand for these components due to potential price increases. It’s possible that with less demand, we could see demand eventually catch up with supply. However, it’s unlikely the situation will unfold in this way. For one, higher prices might result in companies adjusting product cost, passing along this cost to consumers, which if substantial enough, would cause the demand to drop.

3. Products could become more expensive for consumers

In continuation of the effect that tariffs have on electronic components is the impact they will likely have on consumers. As a result of higher priced electronic components, companies may adjust the product cost to pass this cost on to consumers. Therefore, consumers may end up paying more for some products with imported parts. However, before you panic and run out to buy something now to avoid higher cost later, a 25% tariff does not automatically equate to a 25% higher product cost. Only the components of a product will endure imported tariffs.

4. Tariffs could inhibit innovation, industry growth

While the manufacturing industry has experienced steady growth over the last few years, tariffs could quickly change that. Those affected by the tariffs may in turn, raise prices for their products and lose consumers to companies who choose not to or do not have to pass on the rising cost of production. This domino effect can easily transform from higher prices on products to less cash flow to invest and expand, innovate, and in worst case scenarios, lose much of their profitability, which can have an effect on the workforce.

With everything from tariffs to the component shortage happening in the industry, the decisions you make now can affect your company’s longevity. If you have questions regarding tariffs, the component shortage or about placing orders, contact us now.

Kodiak Assembly Solutions has developed manufacturing and assembly solutions with customers’ business goals in mind. Our experience lies in our experienced team, state-of-the-art machines, clean facility, and our quality-centered processes.

Long before Hurricane Harvey and Hurricane Irma landed and caused major destruction and disruption, the electronics supply chain was navigating rough waters of its own. Over the last year, lead times for electronics components grew unusually long due to the fast-growing demand that overgrew the capacity of many manufacturers. Now, the manufacturing industry is facing what many call, a “perfect storm,” where demand continues and will continue to grow, but resources remain static, increasing the price of products, but extending the wait times for parts.

How did demand outgrow electronics component supply?

Experts believe the culprit of this so-called “perfect storm” is the automotive industry. The increase in the embedded technology within vehicles is closer to becoming a standard feature than remaining a luxury for drivers. The advanced driving assistance systems are seemingly a key driver in the uptick within the automotive market segment. Since the automotive industry is shifting significantly to the electronics-based products, the demand seems to be overwhelming the capacity.

Because this demand has been growing, so has the shortage. There were indications of an upcoming disruption within the electronics component supply chain since the beginning of this year and hasn’t let up. This isn’t simply an anomaly or a brief spike. The shortfall has been building all year and will continue to build until demand slows. Now that we’re entering in the final months of the year, electronics manufacturing is gearing up for holiday sales, constricting the already tightened supply.

How will this impact companies and other sectors of the manufacturing industry?

While you may think that since the demand is growing within the automotive industry for certain electronic components, such as resistors, it’s important to think about how this supply shortage affects other sectors of manufacturing. Because resistors are a critical component of any electronic device, just about every electronic device contains resistors, which means there are likely a lot of manufacturers vying for the same components in order to make many different things. The aftermath of Harvey and Irma will only push this demand higher, as the historic floods will lead many to have to purchase new household electronics – everything from automobiles to televisions to laundry machines.

Manufacturers are also responding to the heated demand for mobile devices and cloud technology. There is pressure for component manufacturers to shift production toward those new markets for mobility-oriented parts. The top three makers of DRAM are concentrating more on mobile and server RAM, not PC RAM.

Some major manufacturers of electronic components have announced plans to revamp their manufacturing lines to create more flexibility and capacity. These may improve the situation on the long-run, but will certainly cause additional supply-demand now.

What’s the further impact on component users?

Design engineers are all, at some point, going to have difficulty locating a critical component or even a viable replacement at a reasonable cost. The component selection stage of design is going to get more difficult this year. It becomes increasingly hard to create fail-safe plans to protect against product shortages. Specialty manufacturers can unpredictably drop an entire family of devices to meet demands to supply the mobile sector or wherever market trends take them.

Since 2011, the U.S. auto industry has started facing sporadic production shutdowns for months at a time because of shortages in microchips and other components. These parts were already scarce because of the Japanese earthquake and tsunami disaster. Current supply-based shortages could continue making things difficult. Today, with a healthy all-around market for American cars, some suppliers are beginning to feel the pinch of the supply-chain problems, especially in the powertrain and electrical components. However, the auto sector does not appear to be fatally affected by the undersupply of electronics component parts. The industry is working on diversifying their supply chain to reduce the impact of current supply chain issues.

Kodiak Assembly Solutions has developed solutions with our customer’s business goals in mind. Our strength lies in our experienced team, state-of-the-art machines, clean facility, and our quality centered processes. If you’re concerned with the growing lead times for many electronic components, it’s important to contact us and place your orders ahead of time, before lead times grow too long.

Contact us today to learn more about our assembly solutions.