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Why are Electronic Component Lead Times Rising?

The first half of 2017 has seen electronic component lead times increase, the result of ongoing capacity concerns, the fallout from recent, high-profile mergers, and a sharp spike in demand.

Rather predictably, this had led to a flurry of speculation that supply chains are about to suffer from long-term shortages. Many people have started to discuss the worst-case scenario; one where many popular lines will soon become available on an allocation only basis.

Although we believe that we are still a long way away from allocation becoming a widespread reality, the truth is that lead times are on the rise.

As a result, we would encourage everybody to alter their timetables to compensate for these lead time rises. And if any production work needs to be completed soon, to act quickly to avoid any delays during the procurement stage.

Why are shortages expected for 2H 2017?

As bizarre as it sounds, some analysts are pointing the finger directly at Apple.

The general belief is that the technology firm is set to launch its tenth anniversary iPhone later this year. And with the release of a new device that is expected to sell like the proverbial hotcakes, comes a massive spike in demand for electronic components, such as memory, processors and (supposedly) OELD screens.

Earlier this year, an analyst at Deutsche Bank wrote that “several supply chain reports have suggested that key component shortages…could delay the release of the iPhone 8.” This report has since been supported by other media organisations and industry insiders. Prior to Deutsche Bank’s statement, Ming-Chi Kuo of KGI Securities said that Apple is facing “severe shortages” with its supply chain for the new device. The business-centric media company Bloomberg also predicted that Apple would likely be forced to delay its release due to ‘supply constraints’.

It goes without saying that if Apple is having difficulties in sourcing the components that they need, then the rest of us are going to struggle as well.

Of course, it is hard to compare Apple’s production plans with yours, or indeed our own. But any sudden large-scale production run will seriously impact everybody else’s supply chains as semiconductor manufacturers and franchise distributors will look to prioritise their biggest and most valuable customers.

Although empirical evidence regarding Apple’s purchasing plans remain relatively thin on the ground, even the smallest whisper can set off a global chain of events. It’s the Butterfly Effect in action.

A perfect storm

Moving on from talking about Apple’s latest gadget, we can comfortably say that the entire electronics industry has seen demand increase during the first six months of the year.

Speaking to EPS News, Michael Knight warned that things are likely to get worse before they get better: “We are anticipating this summer things will get even tighter, particularly in resistor chips, inductors and MLCC,” he said.

Global demand through to May has been noticeably higher, with the industrial, automotive and communication sectors consuming more parts than forecast.

However, there has also been a rise of companies ‘double booking’ their requirements in a bid to minimise their risk.

Many semiconductor manufacturers meticulously plan their production runs. Decisions on when stock needs to be available to the market will be made after analysing historical trends and balancing this with projected forecasts (not to mention adding in extra percentage points to deal with unforeseen events).

Faced with a lead time increase, many companies are attempting to duplicate their requirements through multiple sources. But this trend of registering interest with multiple sources has its consequences: Faced with an upturn in demand – some of it false – lead times rise and the threat of allocation increases.

To compound matters, many industry analysts have reported that after years of market stability, many semiconductor manufacturers have been caught off guard. With demand being relatively flat in previous quarters, many leading firms have not invested significant funds into improving their production capacities.

The entire electronics industry is still coming to terms with the raft of mergers and acquisitions that have occurred in recent years. As Adam Fletcher, the chair of the Electronic Component Supply Network, wrote on the effect that consolidation has had on the buying market: “there are legitimate concerns about the medium and long-term product availability, pricing [and] possible product rationalisation.”

Forewarned is forearmed

As we have said previously, we do not think that allocation will be a widespread phenomenon in the immediate future. However, with lead times increasing that prospect cannot be ruled out. Because of this, it is important to be fully prepared and plan accordingly.

If you have any requirements, then we would suggest that you send them over so that we can get the ball rolling. If a project is in our pipeline, then we will be able to act quickly to secure and hold the components that your assembly will need.

We offer a dedicated stockholding service, meaning that we can hold stock and deliver it at pre-determined intervals. This allows you to improve your cash flow and reap the benefits of a more agile approach to business.

With key segments such as the automotive and industrial sectors showing higher-than-expected growth, bullish GDP forecasts and a strong demand for IoT-associated devices, there is little chance that demand will contract.

And that means lead times are also unlikely to decrease.

Although we are confident we can solve most problems, we are unable to ensure that lead times remain low.  In order to ensure that you can meet your previously agreed deadlines, we recommend that you get in touch with a member of our team today. You can either email us (web@djassembly.com), call us (01904 436456) or you can head here and drop us a message.

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