The world of electronics is facing a component shortage. Many companies are struggling to get the parts they need, and the recent increase in demand has made that process even more difficult. Across the globe, people are seeing the effects of increased prices and product shortages. So how did we get to this point?
With the last market crash, suppliers grew wary of the amount of inventory they stock. Slow moving, or dead, stock leads to wasted space and lost profits, so many suppliers reduced the quantity of total inventory in the interest of preventing a similar crisis.
Additionally, ceramic capacitors were initially not a high-demand and widely used component. Only a few major manufacturers in the world needed access to these capacitors, meaning the overall production amount was low. Now, these capacitors are in the hands of millions of people in the form of smartphones, cars, televisions, and other technologies.
Sales and demand were lower than expected in 2016 and 2017, leading manufacturers to cut production, again in the interest of reducing wasted inventory. These three factors contributed to the state of the market as we entered 2018 – the year that just so happened to come with a global innovation boom.
Technology is now embedded in industries that traditionally may not need these types of electronics, with everything from automotive advances in smart cars to smaller ripples in the fashion world. These newer industries have started to put an additional demand on manufacturers to keep innovating their products.
When you combine the new higher demand with the low levels of inventory, it’s no surprise that we’re facing a shortage. Companies are snapping up any components the second they’re available, and manufacturers just can’t keep up with the constant demand.
The component shortage isn’t limited to only ceramic capacitors – manufacturers of every kind are feeling the pressure to produce in order to meet increasing demands. The component shortage is happening across all global markets, and consumers are starting to feel the effects. With fewer components, companies can only manufacture so many products, leading to shortages on the consumer end as well.
As it stands, many manufacturers are currently allocating their components to larger customers. Manufacturers are also denying requests from new customers, trying to find some form of balance in the current demand before accepting new business. Manufacturers are taking steps to replenish their stock, but it’s a slow-moving process.
In the meantime, small and medium-sized manufacturers are facing even harsher struggles as they attempt to make it through the component shortage. Unlike their larger counterparts, small and medium manufacturers have even less leverage to try and catch up with production demands. Outside of parts manufacturing, smaller sized businesses are also struggling as the larger customers take priority in receiving parts.
With fewer products to go around to meet demand, businesses are experiencing longer lead times to fulfill orders. While companies may try to put in orders ahead of time to help deal with the extended wait, there’s still an inevitable delay due to the time it takes for parts manufacturers to create what they need.
With the risk that they may not be able to receive the components they need due to diminishing stock; many companies have started to fall into the trap of panic buying. While ordering an increased amount of stock will help reduce the future need for more orders, it also has the effect of skewing demand. The more companies take while trying to get ahead, the longer it will take others to receive the components they need. In the end, we may even see stock overflow once the shortage begins to stabilize.
No one’s certain how much longer the electronics component shortage will last. While many predictions claim we’re looking at several months to a year of trouble, there’s a very strong chance we’ll be in it for longer than that. It’s going to take smart practices on both the supply and demand sides of the component chain to return the market to normal. As long as you and your CM work together, you can get ahead of the component shortage to still get your orders in on time.