Managing the component supply chain

Author : Thomas Rudel, CEO at Rutronik

03 December 2018

Credit: Shutterstock
Credit: Shutterstock

Supply chain experts often cite examples of shortages of electronic components caused by catastrophic events, such as hurricanes. For ease of access to the supply chain, they may be situated coastally or in other low-lying areas – where the effect of adverse climatic conditions can be disastrous. But of course, as this piece explains, there are a variety of other problems that can also beset component manufacturers, too.

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Although in the past, memory products have regularly featured among the worst affected in terms of availability, there is currently a major shortage of passive components. While many manufacturers have put in place plans to increase production, it obviously takes time for these plans to reach fruition – and for there to be a subsequent positive effect on component availability.

Components such as multi-layer ceramic capacitors (MLCCs) and thick and thin film resistors are some of the worst affected in terms of supply. Distributors that have a long-established and good relationship with manufacturers can do quite a lot in terms of easing the adverse effects of component shortages for customers.

If relationships are well-founded, distributors are in a strong position and stand a good chance of being able to increase the quantity of products they hold. Rutronik is ahead of the game, having anticipated – by expanding its warehouse capacity last year.

By planning well in advance, distributors can schedule their supply of critical parts availability for some years ahead. Rutronik has supply planned up to the end of 2020. Constant monitoring of its orders facilitates rapid reaction to changes, and escalation teams are in place to help action whichever alterations are required. From the customer’s point of view, it undoubtedly pays to keep suppliers advised of forecasts, or to have some kind of logistics arrangement in place.

Advance planning is certainly not a one-sided requirement. Customers and distributors must both contribute in order for processes to run as smoothly as possible. For its part, Rutronik has expanded its critical components team, based at its logistics centre in Eindhoven. 50 new employees are helping to sort and store the mixture of components that arrive on pallets from manufacturers.

Credit: Shutterstock
Credit: Shutterstock

Mixed component supply is becoming an increasingly common practice as the Industry 4.0 initiative leads to the adoption of automated techniques, allowing for increasingly flexible component manufacture.

Efficient internal transportation systems are vital for enabling products to move rapidly through warehouses. It has been claimed that some manufacturers are addressing product shortages by supplying only those customers who have the largest requirements. That is not necessarily a fair strategy – and would be particularly unwise when medium-sized companies account for 80% of your turnover (as is the case for Rutronik).

Pressure on pricing over the past few years has undoubtedly had a detrimental effect in terms of raising product availability. It is obviously hard for a manufacturer to take the bold step of increasing capacity on product lines that are barely profitable in the first place. One company that has bucked this trend is Yageo, which has a market share of more than 25% of global capacity in terms of resistors and MLCCs.

Since 2016, the company has invested more than half of its turnover in its production lines, including in erstwhile unprofitable product lines (such as resistors and MLCCs). This increase has a profound effect on global product availability – and the company currently has an excellent record in terms of product delivery.

Many manufacturers are responding to demand by raising their capacity, which will inevitably lead to price rises. For them, maximising capacity is likely to involve achieving as much mileage as they can from the raw materials they utilise. Essentially, maximising production translates into producing the highest number of components possible. For example, four times as many 0402 capacitors can be produced in comparison with 0603 devices, because of the relative geometric characteristics of the two case sizes.

Credit: Shutterstock
Credit: Shutterstock

Some manufacturers are following a different approach: eliminating non-standard devices from their product portfolio, enabling them to boost production of other, more common devices. Yet another approach is to extend the programme of legacy component availability, while not boosting capability in terms of these products. It’s clear that ‘increasing capacity’ can be interpreted in a number of different ways.

What is equally clear is that any increases in production will take time to implement fully; until they are complete, the shortfall will have to be managed as well as possible. For customers working on new designs, or who have concerns on the overall cost of design, the recommendation is always to opt for the smallest case size possible. This is certainly the way that manufacturers are thinking – and increasingly, it pays to put more on your board: component miniaturisation is an important trend, after all.

Another good tip is to specify as many alternative components as possible. That way, if a problem with component supply occurs, another avenue is open. One further tip to help minimise potential problems of component shortage is to look at components that are specified to automotive standards, rather than industrial ones. Often the specification is equally stringent – and it’s possible there may be better availability in that sector.

Despite manufacturers’ attempts to ease the product shortfall situation, it seems highly likely that this tricky situation will continue at least in the short term. Global demand continues to be high: there are increasing numbers of electronic designs, and demand for 5G mobile network products may also add considerably to the problem.

Such heavy demand will likely also have an effect on the availability of raw material, as well as that of associated products (such as the reels used in packaging components). Increasingly stringent environmental and energy requirements may also play their part in putting additional pressure on manufacturers.

Customers may find their path smoother if they take note of some of the tips outlined in this article. Thinking well ahead is a good way of keeping your edge over your competitors, particularly in terms of your ability to deliver finished product to your own customers.

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