The last few years have seen a drastic increase in order lead time. There was a time when you could expect to receive a full bill of materials (BOM) in as little as 8 to 12 weeks—now it is twice that timeframe. Worse, shortages in manufactured components are causing a knockback amongst almost every company’s output globally.
Fortunately, this doesn’t have to be the end of the world for your company. With a bit of forethought and some proper planning, you can prevent yourself from suffering the worst of this new wave of inconvenience. Today, we will look at how you can survive a component shortage.
What is Causing the Shortage?
Often the best way to overcome a shortage is to understand its causes. Knowing the whys will give you ideas about how you can work around them. There are currently three main reasons people believe these shortages are happening: The expanding automotive industry, the Internet of Things (IoT), and the current Mergers and Acquisitions (M&A).
The Expanding Automotive Industry
The rise of smarter cars and innovations from companies such as Tesla, Uber, and Google has created an avenue through which electronic components flow. The more high-tech cars become, the greater will be reliance on electronics. And this is resulting in a component shortage as manufacturers tend to purchase PCBs and components in bulk, taxing PCBA manufacturers and assembly companies. The lack of supply has also been responsible for the increase in component prices for other industries that need them.
The Internet of Things (IoT)
The IoT is swiftly connecting every aspect of our daily lives. According to Gartner, more than 20 billion devices have become a part of the IoT as of 2020. This means many board components are being redirected to previously unexpected manufacturers. We can now find our whole homes connected wirelessly, thanks to the IoT. Bluetooth and Wi-Fi boards are now installed in many household appliances, such as fridges, freezers, heating systems, and even light bulbs.
Mergers and Acquisitions (M&A)
2016 saw an all-time high for mergers and acquisitions in the technology market. While ultimately beneficial, these M&As make for a turbulent time in product distribution. Rushing outstanding orders and supply deals causes chaos. Not to mention, the discontinuation of certain products as companies are absorbed or shut down leads to gaps in the supply chain.
How to Handle Component Shortages
Regardless of the state of things, companies like yours still need these components to continue production. As such, you cannot just hope that things rectify themselves quickly. Take proactive measures to help protect yourself against these shortages. Here’s what to do:
Build a strong network of suppliers with good relationships
Knowing who handles each step in your supply chain is a good way to counter any issues that may arise.
First, knowing who provides what allows you to know which items might become difficult to find, should shortages arise. In this case, you will be able to quickly switch from one supplier to another with ease and minimal disruption.
Second, maintaining good supplier relationships has many benefits. If you are close with your electronic manufacturing services provider, offering a much more consistent and equal working relationship, they may become more likely to help you in troubled times. Suppliers who can rely on their buyers will be more willing to put them at the top of their lists when supply issues occur.
Keeping your suppliers close is the best and most lasting option. Good connections ensure a better working relationship and consistency in times of trouble. It is in both parties’ interests to ensure a reliable customer/supplier that they can rely on for the future of their company.
Understand your inventory needs
Companies that assume their stock needs will always be filled are more likely to be hit hard by component shortages. A solid understanding of your stock needs can be the means of protecting you from losing out as a result.
Depending on your output, you might find that some products you manufacture are more popular than others. It always pays to keep a healthy stock of parts on hand for these goods. Once you know what parts are more commonly used, invest in a few larger orders to ensure that you have enough to cover a few months of disrupted supply. It may feel counterproductive to overspend, but that initial investment could be the difference between steady work and a few failed months.
What’s more, knowing the specifics of your stock needs means you can also determine whether there are alternatives you can use. While certain items cannot be easily replaced, many more common ones can. Finding which parts you can switch out, and keeping some suppliers for those parts handy, will allow you to circumvent stock shortages for those goods.
Understand supply risks and learn to forecast
By learning how your suppliers work, you can recognize the signs that come with supply issues. With your strong relationship, you should determine the lead time on certain items in your BOM based on how your supplier works. This will allow you to work out your own lead time to manufacture your goods and provide better delivery times.
Again, this comes down to your relationship with your suppliers and how important it is to work closely together. Too many companies try to keep their production forecasts secret, which prevents them from working together with their suppliers. By being open, you can work together to ensure you get what you need, when you need, based on predictions with your manufactured output. You can also use this knowledge and connection to share your work forecast with your suppliers and better tailor your deliveries with them.
Component shortages affect every industry all the time, but with technological advances, we are finding the problem to be spread much wider than companies can cope with. The good news is that with a little planning and business sense, we can prevent major production catastrophes and offer a great customer experience.
Component shortages often happen, especially with the drastic increase in order lead time. But this does not mean the end for your company. As long as you take precautions and do proper planning, you can overcome this issue with the component shortage. Read a detailed explanation of what caused this shortage and how to handle it.