It should come as no surprise that the electronics industry is a volatile and unpredictable market. Component shortages can happen at any time, and they can quickly cause disruptions in your supply chain. For consumers, this translates into an inability to find replacement parts for their devices or delays when purchasing new equipment from manufacturers who are waiting on key components to arrive. However, there are steps that you can take to reduce the likelihood of component shortages impacting your business.
How do component shortages happen?
Electronic component shortages can occur due to a variety of factors including increased demand for electronic devices, disruptions in the global supply chain, limited production capacity, geopolitical tensions affecting trade, natural disasters impacting manufacturing facilities, and complex logistics challenges. These factors can lead to a mismatch between supply and demand, resulting in electronic component shortages that can affect various industries such as consumer electronics, automotive, aerospace, and telecommunications, leading to increased prices, production delays, and potential impacts on the overall economy.
In recent years, the continuing surge in demand to embed electronics in everyday items (the so-called Internet of Things) as well as steady increases in demand from huge industries such as the automotive and computing sector have made it hard for manufacturers to keep up. Mix in disruptions big (like COVID-19) and small (like the Suez Canal blockage), and you have a recipe for chronic shortages.
Even as the world puts COVID-19 in the rear-view mirror, the prognosis for the electronics components industry remains highly volatile. Semiconductors go through routine boom-and-bust cycles, and as new chip designs accelerate, demand can quickly knock a favored chip out of stock in an instant. The only thing that you can count on is that shortages will happen.
Plan for supply chain disruptions
You should always have a plan B. If a supplier is unavailable or the part you need becomes difficult to find, don’t wait until the last minute to source it elsewhere. There are plenty of options out there if you take the time to investigate them in advance of an emergency situation.
So how can you plan for these disruptions without impacting end consumers?
Diversify suppliers
Diversification is the process of finding multiple suppliers for each component. This is especially useful if you have a large supply chain or have been working with one supplier for some time, as they might not be able to meet demand at all times.
It’s important that they are located across the world (ideally on different continents!). This will help not only reduce inventory costs but also mitigate risk by ensuring that there are alternative sources of supply should something happen to one of them. You can also use this method as a backup plan when sourcing parts that have limited availability or high demand; by having additional suppliers for the same part number and/or country, it gives you more options even if something goes wrong with an existing relationship.
Diversifying one's supplier base for electronics components has several pros and cons. The pros include increased supply chain resilience, reduced dependency on a single supplier, mitigated risks of disruptions and shortages, potential for better pricing and terms through competition among suppliers, improved flexibility in response to changing market conditions, and enhanced ability to meet customer demands. However, the cons may include increased complexity in managing multiple suppliers, higher costs associated with qualifying and managing additional suppliers, potential challenges in maintaining consistent quality and performance standards, and the need for robust supplier management processes to ensure compliance and reliability. Careful consideration of these pros and cons is necessary to determine the optimal strategy for diversifying a supplier base for electronics components. Ultimately, you'll need to find the happy medium between resilience and complexity for your own business.
Secondary component marketplaces
A secondary marketplace is a place where you can buy or sell components. For example, you might have some old hard drives that are no longer useful to you and want to sell them for cash.
What makes these sites unique is that they are not just used by individuals looking to get rid of excess inventory; they also serve as a bridge between manufacturers and sellers who may only be able to access certain parts through secondary markets.
While secondary markets can fill critical gaps, buyers also need to beware: you’ll have to pay many times the manufacturer’s price when trying to find replacement parts, and if you work with the wrong broker, you may not get the right parts at all. There are a number of substantial risks associated with working with electronics components brokers:
- Counterfeit or substandard components: Brokers may source electronic components from unauthorized or unverified sources, increasing the risk of receiving counterfeit or substandard components that can result in product failures, performance issues, and potential safety hazards.
- Lack of traceability and transparency: Brokers may not always provide clear traceability or transparency in the supply chain, making it difficult to verify the origin, authenticity, and quality of the components, which can pose risks in terms of compliance, reliability, and quality control.
- Limited warranty and after-sales support: Brokers may not offer comprehensive warranties or reliable after-sales support for the components, leaving buyers with limited recourse in case of defects, failures, or issues with the components, which can result in financial losses and disruptions in production.
- Price fluctuations and instability: Brokers may operate in volatile markets where component prices can fluctuate rapidly, leading to uncertainties in pricing, availability, and overall cost management, which can impact profitability and supply chain stability.
- Delivery delays and disruptions: Brokers may face challenges in managing their own supply chain, which can result in delays or disruptions in the delivery of components, leading to production delays, increased costs, and potential customer dissatisfaction.
- Legal and regulatory compliance risks: Brokers may not always comply with legal and regulatory requirements, such as export controls, environmental regulations, and conflict minerals regulations, which can expose buyers to legal and reputational risks.
The above are reason enough for most companies to avoid brokers entirely, and sometimes even accept production delays over working with them to fill a shortage. At Amplio, though, we've found that the risks can be mitigated with a smart combination of building relationships with trustworthy brokers and demanding warranty insurance on parts. Want to take advantage of our experience navigating the broker market? Our PartSecure service will get you the parts you need at a quality you can trust.
Strategically manage inventory
To avoid getting stuck with a large inventory of parts you can’t sell, it’s important to make sure that you have a good supply chain management software. This will allow you to manage your suppliers and inventory as well as forecast demand for each part. Electronic parts can be tricky to source because there are so many different manufacturers who may stop producing an item at any time. To find the right parts, consider looking at several suppliers and their reputations online before deciding which one is right for your business.
Best practices for manufacturers selling off excess electronic component inventory include conducting accurate inventory assessment, conducting market research, communicating clearly about the components, utilizing multiple sales channels, setting competitive pricing, offering flexibility in packaging and shipping, providing responsive customer support, ensuring compliance with legal and regulatory requirements, and maintaining proper documentation. These practices can help optimize the sales process, attract potential buyers, build trust, and mitigate risks associated with excess inventory management.
With Amplio, it's never impossible to find what you need
Large, sophisticated enterprises struggle to manage component shortages – it’s doubly difficult for growing OEMs that are just getting their feet under them.
While the processes above take a lot of time and effort for OEMs, specialized electronic part procurement solutions like Amplio make resilience a breeze.
Amplio is a simple solution that works with multiple suppliers, warehouses, logistics providers and customs brokers on its OEM clients’ behalf – ensuring that they always have the components they need at the right price. With built in intelligent supply chain analytics software and a secondary component marketplace, finding replacement parts changes from a liability to a breeze.
Component shortages are a fact of life for electronics manufacturers. There is no way to completely avoid them, but you can take steps to mitigate their impact by diversifying your suppliers and planning for disruptions in the supply chain. In addition, secondary marketplace options exist that allow you to buy directly from other users or third-party vendors who offer surplus inventory at competitive prices. If your procurement team is struggling to get ahead of electronic part shortages, get in touch with Amplio and we’ll create a no-obligations plan of action to solve your critical gaps and prevent them from reoccurring.
