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Electronic Components Crisis : How To Deal With It

If the electronic component crisis has shown anything, it’s that supply chains are unsurprisingly volatile. Although the crisis was aggravated by the Covid-19 pandemic, it raises considerable concerns about the vulnerabilities of global supply chains. 

No company is safe from the global semiconductor shortage, which is expected to not ease up until 2022 at the earliest. Part of the problem is that restoring market balance will take time because semiconductor manufacturing is not suited to rapid and large shifts in demand. 

The electronic components crisis started primarily due to pandemic-related demand for consumer electronics and the increased demand for advanced vehicles that use an increasing number of chips. That was followed by other aggravating factors such as a rare winter storm in Texas that cut chip production and a fire at a key Japan factory (Renesas) that would shut the facility for a month.

Man frustrated by deadlines and his boss demands

Rise In Electronics Prices

 

The shortage of electronic components has led to the price of some chips sky-rocketing – statistics show that several semiconductor companies have adjusted their price by up to 30 percent. 

Experts warn that the chip crisis is going to inflate prices for consumer electronics in the first quarter of 2022 when prices manufacturers are paying now for components get reflected in retail prices. Already companies have started telling customers to not only wait longer for new smartphones, PCs, and consoles but also expect higher prices. 

Man and forecast charts


Overstocks Leading To Waste

 

Another problem emanating from the global electronic component shortage is the issue of overstock. As chip manufacturers brace themselves by ramping up the production of chips, they may also end up dealing with surplus chips in a few months’ time when the rampant demand might have cooled down and the immediate shortage might have eased. Manufacturers may struggle to find buyers for electronic components as a result and it won’t before you’re sitting on an overstock. 

As it stands, the component shortage is expected to push out until the second quarter of 2022 while TSMC – the world’s largest chip manufacturer - has said that it doesn’t see the supply crunch easing until 2023. And with supply chains still reeling from COVID, this won’t be the last time industries run short of crucial electronic components or fall into costly inventory management traps. 

Any OEM (original equipment manufacturer) that is directly or indirectly dependent on semiconductors must analyze the supply chain risks facing the chip industry if it doesn’t want to suffer every time there’s a crisis in the future. 

 

How To Deal With The Electronic Components Crisis

 

In the short term, local manufacturing industries remain largely unaffected by the chronic shortage of chips. One possible explanation is that domestic manufacturers tend to source local components to maintain their production – which suggests that bringing supply chains closer to home may help fix the problem. Reshoring not only reduces supply chain risks, it also eliminates overreliance on just a few vendors. Plus, it is much easier for OEMs to source components from local suppliers and resellers than it is to procure parts from foundries around the world.

Some companies such as Hyundai, Volkswagen Group, and Toyota have weathered the crisis much better in the first half of 2021 due to having robust contingency plans for handling unforeseen circumstances that sometimes entail stockpiling chips. But this more often than not creates a “bullwhip’” effect.

Ultimately, the best way to foster a semiconductor industry that serves everyone's interests is through greater cooperation. OEMs should create strategic and close relationships with suppliers, resellers and traders not only for information sharing purposes but also to help source critical components. 

Additionally, enhancing supply chain visibility through automation and artificial intelligence technologies can help OEMs accurately predict consumer demand and adapt to unforeseen shifts in the marketplace more effectively.  This will also help you avoid overstock situations and waste - obsolete/excess stocks costs several billions of dollars annually. 

A Move Towards A Circular Economy

 

The 5R circular approach – repair, reuse, refurbish, remanufacture, and recycle – provides a great opportunity for OEMs to eliminate waste by retaining the value of their electronic components. For example, you can apply the reuse approach to dispose of obsolete or excess inventory via the grey market to boost revenue and profit margins. 

AIRENC community-based transaction platform allows OEMs and EMS to buy and sell electronic components at competitive prices and streamline their supply chains. The platform brings together stakeholders to collaborate, share information and work towards a circular economy by identifying obsolete/excess components inventory and creating a market for that stock. By using the collaborative platform for these products, AIRENC not only generates revenue and margins for parties involved, we also open new markets, transform the grey into a transparent one and help them to reduce their ecological footprint.

Excess and obsolete stock is part and parcel of electronic components manufacturing. Forecasts are really best guesses and despite efforts to limit the bullwhip effect in your supply chain, unforeseen circumstances such as the electronic components crisis can always catch you. This way to manage your supply chain is over. At AIRENC, we have designed a solution to better manage this inevitable cost to your business and stabilize your supply chain.


Published: Jun 28, 2021

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