Flexibility Helps OEMs During Period of Component Shortages
Component backlogs are easing, the end of the chip shortage is in sight, and the electronics supply chain is starting to recover from its long COVID disruption. Distributors say flexibility is the secret to OEM success during this recovery phase.
Anyone in the market for a vehicle will not be surprised to learn that the average age of vehicles on the road in the U.S. and Europe is at an all-time high. Used or new, current car prices have compelled drivers to hang on to vehicles that might otherwise have been hauled to the junkyard by now. According to S&P Global Mobility, the average age of a passenger vehicle in the U.S. is 12.5 years for 2023. In the EU, it’s about the same. (Meanwhile in China, where one in four cars sold is an EV, the average vehicle age is only 5 years.)
Three years after China shut down its electronic components manufacturing lines in response to the first wave of COVID-19, global supply chains are still recovering, including production of the all-important semiconductor, or chip. The supply of this critical component remains constrained, while at the same time, chip demand across markets has skyrocketed. Perhaps no market has been so impacted as automotive; depending on the drivetrain and electronic systems inside, a modern vehicle can contain as many as 3,500 chips. The automotive industry’s prioritizing of super-sized vehicles with luxury digital amenities means fewer units are using more chips. In other industries, connectivity trends such as smart cities, automation, IoT, 5/6G, decentralized finance, streaming, and AI are putting even more pressure on a limited supply. In 2023, data center capacity rose to 7.4 GW from 4.94 GW just a year ago.
To alleviate the shortage, the U.S. passed the CHIPS and Science Act in 2022, which has led to the development of more than 50 new semiconductor manufacturing facilities (fabs) in the states. The Semiconductor Industry Association says that the CHIPS Act spurred $200 billion in private investment in domestic chips production. The EU passed its own European Chips Act to bolster domestic production. Chip availability impacts every other component. Proposed bipartisan legislation, the Protecting Circuit Boards and Substrates Act, would also strengthen domestic U.S. PCB production, says IPC, a global electronics industry trade association. Reducing the electronics industry’s dependance on single-region sources for critical components will go a long way towards preventing future shortages. However, those facilities are still under construction, with a production flow not expected to begin until later this year. IPC’s April 2023 Global Sentiment of the Electronics Supply Chain Report found that cost pressures are receding and inventory is rising, but recovery remains slow.
Interconnects are impacted by other component shortages. Bishops & Associates reported that global connector sales in March were off -0.9%, while semiconductor sales were down -21.3%. “Since semi demand leads connectors by several months, we can expect the connector industry to also report future declines,” said the May 11, 2023, Bishop Report, also noting that “China is continuing to experience sporadic lockdowns from COVID outbreaks, which in turn is impacting the manufacturing and exporting of materials and components to other countries.”
So, what is a manufacturer to do? “Being flexible is essential during periods of long lead times and component shortages,” said an Avnet spokesperson. “We assist our customers in working through shortages on a systems level, with a solutions focus. You need every component to bring a product to market – not just a microcontroller or interconnects. We help customers find the best solution achieve that as well as design for availability.”
Avnet said distributors are ideally positioned to help OEMs, as they can draw upon deep inventories from numerous manufacturers to create workable solutions given availability. “Turn to Avnet as early as possible in the design phase, and we’ll create a plan that builds in flexibility, while still being manufacturable on a timetable that works,” the company said. Avnet and other distributors have historical experience with the expansion and contraction of components availability and have developed strategies to manage these challenges. “The industry is cyclical. Our current cycle is much more complex, driven by pandemic issues along with growing demand for connectivity products. Across industries, we are also seeing significant shifts, with increased automation and robotics, as well as electrification of the transportation industry.”
The second annual Avnet Insights survey, released in late 2022 and including input from over 1,600 engineers, found that supply chain visibility, transparency, and agility have been key considerations for organizations throughout the recent disruptions, with many companies building up buffer inventories (23%), while others are looking to enter long-term supply agreements (21%) and improve relationships with their distributors (19%). Other considerations include shortages of skilled labor and ESG. “There is more of a focus on raw materials ESG across the industry, as we all grapple with the reality that we are working with finite resources. Management of those resources will be especially important continued electrification demands increased use of batteries across markets,” said Avnet.
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