Why is there an electronic component shortage?...

Author : Steve Hughes, Managing Director of REO

08 November 2018

Since the launch of the Model 3, Elon Musk has been under significant pressure to scale up Tesla’s manufacturing capacity to overcome its current struggle with meeting demand. Currently, the electronic component supply chain is trying to tackle a similar challenge, as this piece explains.

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The need for electronic components is growing exponentially. In conjunction with our greater use of smartphones and other handheld devices (and their relatively short product lifecycles), there is increased use of ‘smart’ electronics in all kinds of industries that did not traditionally use them. The rapid evolution of the automotive industry and the IoT are two key drivers that have resulted in unexpectedly strong demand for components – which, naturally, manufacturers are finding difficult to keep pace with.

Like most modern technological devices, automotive systems utilise multi-layer ceramic capacitors (MLCCs) – and a traditional combustion engine car can require in the region of 3,000 capacitors. However, as cars transition from hardware-driven machines to software-driven machines, their infotainment, driver assistance and comfort systems require even more components.

The requirements, for example, for display systems, LED lighting, sensors and artificial intelligence features have all contributed to the inflation of components required by this market. As a result, forecasts suggest that the number of MLCCs could rise to 22,000 in just one car in the near future.

In addition, annual production of electric vehicles is expected to reach 2.4 million units by 2021, from 409,000 in 2014. This substantial rise has been driven by new emissions regulations and incentives from governments – and it doesn’t look like slowing down any time soon.

Similarly, IoT devices were nothing but a figment of the imagination 30 years ago, but smart devices are now adding a further burden to an already constrained market. In fact, forecast show that IoT devices are set to grow to almost 31 billion worldwide, and this has raised concerns among manufacturers.

Nearly every industry uses electronic components, and we are finding that many customers are double-ordering components and panic buying to try to eliminate further production delays along the line. However, this does not provide a suitable long-term solution.

Instead, at REO, we are urging businesses to implement a more effective planning strategy and flexible ordering system for their projects, which can help protect against unexpected supply chain issues, such as the current shortage.

As it stands, analysts’ predictions are varied, but the consensus is that the shortage will most likely continue into the early months of 2020 at the very least, and so businesses need to set realistic expectations and regularly update their customers to retain good relations. This has been the approach taken by Tesla, which even now is still trying to boost its production output, while continuing to generate orders.

This is not the first time that there have been long delays for key components in industry, and we expect that it will not be the last – especially as buying behaviour and purchase decisions can be so unpredictable. By implementing a procedure that allows for longer lead times, managers will be able to better manage operations, in order to respond effectively to fluctuating lead times in the future.

Since the launch of the Model 3, Elon Musk has been under significant pressure to scale up Tesla’s manufacturing capacity to overcome its current struggle with meeting demand. Currently, the electronic component supply chain is trying to tackle a similar challenge, as Steve Hughes, Managing Director of specialist components manufacturer, REO explains.


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