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Electronic Components FAQs : Bullwhip Effect, Electronic Components Shortage, OEM, EMS and ODM

What is the Bullwhip Effect?

The bullwhip effect explains how small shifts in demand for certain products ripple up the supply chain, causing bigger and bigger swings in production. The growing global semiconductor shortage is a perfect example of how a mismatch in supply and demand can create a long tail of supply disruptions.

For more details regarding the bullwhip effect, you can have a look at these articles: Bullwhip effect - History and solutions and Bullwhip Effect: 4 simple ways to crack it.

What caused the current electronic components shortage?

 

The global chip shortage was started when the coronavirus crisis sparked an abrupt surge in demand for consumer electronics and advanced cars as people found themselves at home and in need of entertainment. The demand for semiconductors far outstripped supply as chip manufacturers fielded far more orders than any supplier could fulfill, leading to a scramble to source additional supply. 

The subsequent supply chain disruptions and knock-off effects have complicated the process of producing electronic components, leading many OEMs to shut down foundries or scale back production.

How long will the electronic components shortage last?

 

Experts warn that the global chip crisis will persist until mid-2022 – that’s when foundries hope they can be able to produce enough chips to help the industry sail out of these troubled waters.

It is also important to consider that depending on the market, companies will get out of the crisis in a shorter or larger period of time.

 

Why is the electronic components shortage a concern? 

 

Apart from the obvious knock-off effects of the chip crisis like price run-ups and stockouts, the main concern for OEMs and EMS is the risk of another bullwhip effect happening due to excess supply. Companies that are rushing to rebuild their crisis-hit supply chains risk falling into a business trap that can lead to crashing profit margins and excess inventories. 

Types of electronic components

 

Semiconductors are an essential component of electronic devices. However, electronic components are classified into two main types: active components and passive components. An active component is a device that can amplify a signal or produce power. Examples of active components include oscillators, transistors, or ICs (integrated circuits). A passive component, on the other hand, refers to a device that cannot control electric current through another electrical signal. Capacitors, resistors, transformers, and inductors are some of the most important passive components. 

Where to obtain electronics components

The global electronic components industry comprises OEMs (original equipment manufacturers), EMS (electronic manufacturing services), brokers, distributors, marketplaces, components manufacturers and more. 

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What does an OEM mean in electronics manufacturing?

 

An Original Equipment Manufacturer (OEM) designs, manufactures, and brands electronic items that can then be marketed for itself or re-sold by another company, while the OEM retains the rights to the parts. They can also design and manufacture parts that are resold to other companies who assemble them into their own finished products. In order to build their electronic items, they often purchase components from manufacturers or suppliers.

AIRENC empowers OEMs to build a seamless supply chain with a unique transaction platform for buying and selling electronic components at competitive pricing. More importantly, the platform enables OEMs to take control of their supply chain by limiting emergency situations, improving product quality and responding better to market changes.

 

What is outsourced manufacturing?

Electronics Manufacturing Services (EMS) is a form of outsourced manufacturing in which the OEM contracts another company (Contract Electronic Manufacturer) to manufacture, test, assemble, distribute and repair electronic devices on their behalf.  This means that the OEM relinquishes control over their day-to-day manufacturing operations, allowing the company to focus on product development and innovation.

Original Design Manufacturer (ODM)

 

An Original Design Manufacturer (ODM) is similar to EMS except that in this outsourcing model, the ODM retains the intellectual property for the electronics devices. ODMs typically offer specialized and specific component types where they actively patent those components.

Distributor

 

An authorized distributor works in close partnership with the electronics manufacturer to distribute their components out within the wider market. As part of the agreement, the manufacturer may require the distributor to meet certain conditions regarding pricing, stock holding/levels, targets, territory, etc. 

Broker

 

Brokers are independent suppliers that usually don’t have an affiliation to any particular brand or franchise. They are neither manufacturers nor authorized distributors. Brokers typically thrive in the aftermarket where there are asymmetries between buyers and sellers and a lack of transparency regarding the source of components.

Marketplace (Catalogue Suppliers)

 

As the name suggests, a marketplace facilitates the selling and buying of a variety of components often in small volumes and with no minimum order quantity (MOQ) requirements. Holding a vast range of product lines, all in convenient quantities and available for next-day delivery, marketplaces play a vital role in the electronics components industry. 

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Community-based transaction platform

 

A community-based transaction platform like AIRENC is a unique collaborative platform that facilitates the information sharing and trading of electronic components. The platform brings together OEMs, EMSs, ODMs (as vendors and/or buyers) to collaborate, share information and work towards a circular economy by identifying obsolete and surplus components within their supply chain and creating a market for that stock. This not only generates revenue and margins for parties involved, it also opens new markets for OEMs and EMS.

 

Components counterfeit

 

The threat of counterfeit components has never been greater. Counterfeit electronics components refer to components that have been intentionally copied, altered, or created to misrepresent a legitimate component. Fake components can also refer to used or older parts that have been misrepresented as new. It’s estimated that counterfeit components cost manufacturers millions of dollars annually as companies try to combat fakes.

The AIRENC transaction platform utilizes a transparent scoring system that allows members to build trustworthy relationships and transact with confidence.

 

Substandard components

 

Electronic component manufacturers are also concerned with reducing the risks of substandard components infiltrating their supply chain. Substandard components are those parts that are authorized but fail to meet their quality standards or specifications. AIRENC helps OEMs and EMSs to obtain high quality parts from qualified vendors, ensuring standardized procurement processes are maintained to shield manufacturers from purchasing substandard parts.

End of Life and Obsolescence

 

End of Life (EOL) is used to indicate that the manufacturer has stopped manufacturing a particular product line along with its associated accessories. When a component reaches its EOL, this means it will no longer be manufactured, supported, or sold by the manufacturer. 

Obsolescence occurs when a component becomes unavailable due to problems in manufacturing, government regulations, technological change, or simply because the manufacturer can no longer support its production. All components become obsolete after a time. But when some components become obsolete more quickly than others, it becomes a major issue for OEMs and EMSs. AIRENC transaction platform helps you anticipate the risks of obsolescence, providing a ready market to purchase replacement components, cut costs and streamline your supply chain. 

What is multi-sourcing?

 

Multi-sourcing refers to the use of multiple suppliers of electronics components in which the manufacturer relies on a small pool of vendors, but augmenting it with other suppliers who can “fill in” as needed. Amid shortages, OEMs and EMSs can leverage AIRENC transaction platform to source components from a large pool of vendors to reduce the risks of supply chain shocks. 

What is Double Booking?

 

Double booking occurs when electronics manufacturers anxious to secure inventory amidst supply chain uncertainty order more components that they really need. Unfortunately, this practice results in some manufacturers acquiring massive stockpiles of components while other companies shut production because they have none. Using AIRENC transaction platform, OEMs can more accurately refine their supply needs and better anticipate market changes to prevent stockpiling.

AIRENC is proud to launch an innovative community-based transaction platform that leverages the power of the community to address the bottlenecks in the electronics supply chain. We know that OEMs and EMSs are looking for quality, efficiency, and right-cost options, all of which you’ll find by taking a closer look at the AIRENC platform.


Published: Jul 12, 2021

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