In recent years, shortages of components such as core processors have motivated customers in the semiconductor supply chain to hoard and stockpile products that were limited in supply. Caused in part by the lack of production supply as factories ceased production through the pandemic, the situation was exacerbated by ensuing global events such as Russia’s invasion of Ukraine and the ongoing trade war between the U.S. and China—both of which have affected strategic manufacturing and supply—along with inflation driving up costs and the continued delays in international and domestic logistics.
Against this problematic global backdrop, chip and core manufacturers steadfastly expanded production to counteract shortages. Just as production in the semiconductor supply chain begun to catch up, the overwhelming demand for consumer electronic devices calmed as both leisure time and disposable income reduced.
In 2023 the immediate demand for electronic devices has weakened. This situation has led to enterprises along the semiconductor supply chain holding excess chip inventory. The problem here is that money tied up in stock affects company profits. The speed of technological advancement in the realm of core manufacture also means that stock left unused may quickly be devalued or become obsolete.
For manufacturers the surface solution is simple: To prevent losses, they merely need to cut orders. Further down the supply chain however, some core chip design and manufacturing companies had entered into long-term production agreements with wafer fabrication factories to ensure a smooth and consistent supply process. Without fresh orders to meet pre-agreed targets, production quotas must continue to be filled or manufacturers could face fines.
As the process is cyclical, so problems will follow in a cyclical fashion. For this reason, immediate cessation of orders is not a solution. Gradual slowing of orders and destocking is a wiser way forward and the growing trend.
But how will this level of excess inventory be managed in the market? The overarching answer is that the solution must come from the semiconductor supply chain itself. Every link in the semiconductor supply chain must work together as a community to achieve balance again in the market. Each link must strengthen interaction both upstream and downstream in a bid to communicate needs, which will enable the prediction of industry trends and critical long-term production planning and scheduling at each stage.
As the largest distributor of electronic components in Asia, Win Source is well positioned to help customers destock. Via its extensive global supply chain, the company assists customers in the turnover of any excess inventory. For customers, this not only frees up precious warehouse space but also releases much-needed funds back into their own research and development. The healthy development of any enterprise is reliant on the optimisation of internal resources. Providing funds for the source of innovation within enterprise-design and R&D departments is a vital process.
It’s also a service we provide to our customers to optimize their own supply chain. Indeed, it’s just one of the ways Win Source is able to supply its customers with hard-to-find and obsolete parts, or even alternative parts. The conversion of excess inventory that has no use to an enterprise into effective funds, makes Win Source an active link in the supply chain and supports the healthy development of the semiconductor supply chain as a whole.