Here are five proven strategies to help you reduce your electronic component lead times.
The table below shows the current realities facing the global IC shortages in 2021.
Since component lead time for electronics is a major factor in time-to-market, it must become a core factor in your electronic design. This requires involving your assembly factory early on, as they know what works in their specific supply ecosystem.
Chances are that a factory in a manufacturing ecosystem can suggest plenty of components which are not only faster to order, but more affordable as well.
3 Key Contributing Factors of Current Extended Lead Times
Companies selling home office electronics, computer peripherals, and entertainment devices have all experienced a dramatic spike in sales. Short-term stock outs of companies have also led to many new businesses scrambling to meet skyrocketing demand.
Overconfidence in the market leads to a demand bubble with many companies double and triple-ordering to meet rosy sales forecasts. What we see are likely the beginnings of a bull-whip effect with an electronics glut occurring over the next two to three years.
A standard EV requires thousands of ceramic capacitors for advanced electronic features, a trend that began even with internal combustion engine (ICE) cars adopting more sensors, cameras, and in-car monitoring systems.
The automotive sector locks up capacity with high-volume, low margin products such as power management, microcontrollers, and capacitors. Factories are unable to turn away these mega-clients because they are a steady source of production in a cyclical, fluctuating market. Even still, factories are reluctant to expand capacity for these products due to declining ROI.
In Section 301 of the US Trade Act, the following are among those hit by the 25% import tax for Chinese goods imposed by the White House, affecting over $50 billion worth of industrially significant technologies:
Many firms started to stockpile certain components they need to import from China in anticipation of the latest round of tariffs.
From the other side, former President Donald Trump’s decision to ban Taiwan Semiconductor Manufacturing Co. Ltd (TSMC) from supplying Huawei, among other trade policies, are also causing a supply-scare from many factories in China. This is leading to major stockpiling from both sides, exacerbated in anticipation of factory shutdowns during Covid-19.
5 Strategies to Reduce Lead Times
Go for Steady Small Orders
If possible, and if it makes sense for your company, make steady smaller monthly purchases that will keep you in top of mind of your supplier as a predictable recurring customer, so when times of tight inventory come, your supplier will be more likely to keep your small share available.
Share Your Sales Forecast
Talk to your supplier, build a relationship with them, and share your sales forecasts. If the numbers are interesting to them, then they’ll most likely help you make sure you get your orders on time.
If you notice that your sales forecasts are of no interest to them, then this might be a sign that they have some big customers that already have their full attention, this might be a signal for you to try looking for other distributors.
By consolidating your components orders from fewer suppliers, you will increase your purchasing and negotiation power, which, in times of shortages, might give you a better position in the line when allocation processes start being implemented.
It’s worth mentioning that this is not always possible, especially for critical electronic components. For these, you’ll need a specialized supplier that can often give you a better (more importantly) faster and more technical feedback.
Brokers can be found in what’s known as the gray market.
They currently make up for 6 to 8% of the total electronic components market and make up as much as $60 billion dollars’ worth.
Let’s make something very clear now: brokers are not manufacturers nor authorized distributors.
They “specialize” in getting obsolete or hard to get parts, so, during times of shortages and long lead times, you can resort to them, and maybe they’ll be able to get you some of the components you need. This comes at a risk.
Unless you make an extensive inspection before buying the components from them, it would be difficult for you to verify the authenticity and functionality of each item.
Most international buyers would write-off this option, but as with any factory relationship, experience along with careful research beforehand can mitigate risks when buying in a bind.
The advantage of sourcing components from brokers is that they often deliver shorter lead times than authorized distributors or manufacturers. But expect no after-sales support from them as they only focus on getting and selling components.
If you decide to go down the broker road, make sure to consult with people that have a lot of experience buying electronic components—they will be able to tell you if a deal is too good to be true.
If you generally order only, say 5,000 units per batch, it could work to ask your factory to piggyback your small orders on top of bigger ones.
But you have to consider that timelines for both orders will most likely be out of sync.
If a factory agrees to piggyback your small order on top of another client’s big one, this will mean that the delivery time for you will depend on the delivery time for the biggest order.
Because of their scales and established relations, factories may get better allocations in times of scarcity of raw materials for electronic components.
For the small generic resistors, a larger factory normally will keep a house stock, but every component which is unique to your design carries the risk that the component may never be used.
So, in most cases the factory will not finance your components, if you ask them to stockpile on your behalf you will be asked to pay for that investment.
Do your research and find out which components currently have a long lead time and design your product around it.
Don’t forget to also involve your manufacturing partners early in the process to make sure the proposed design, with its components, is something that makes sense from a manufacturing perspective.
Check with a manufacturing house/plant for possible substitutes and equivalence for electronic components.
You can build your first working prototype using parts from Digi-Key, but as soon as you have the working prototype, discuss with an assembly house/plan what are the possible electronic components substitutes and/or equivalence they can suggest and design around that.
If there’s a risk a certain component may be out of stock, check weekly on pricing and lead times.
Delay your component choice to the last possible moment. Consider having a PCB design that allows for two or more alternatives for “dangerous” positions.
For key cost drivers, you can even make two different PCB layouts, and use one or the other based on pricing and availability of that key component.
This solution is your best bet at meeting your time to market and cost targets without being delayed by lead time issues.
Additional Tips from Our Manufacturing Manager
About the Author
Keesjan Engelen is the CEO of Titoma, a mid-sized ODM firm for embedded electronics headquartered in Taiwan. Keesjan has been working in electronics in Taiwan and China for 25 years, and frequently writes about design for manufacturing in Asia. He emphasizes incorporating China components very early on in the design process, without getting yourself locked in.