Widespread supply disruptions are stressing companies across most industries right now. From semiconductors to electronic components to jet fuel to steel, the list of “hard-to-get” items appears to be growing as the year progresses.
The problems initially surfaced during the early stages of the pandemic, when a combination of factory shutdowns and panic buying quickly emptied store shelves. By early 2021, the issue had expanded into the industrial space, where container shortages, a lack of truck drivers, port congestion and ongoing pandemic effects have taken a steep toll on the world’s supply chains.
In response, automakers are being forced to stop production due to COVID-19 outbreaks and railroad operators are temporarily suspending cargo shipments in an effort to help ease significant transportation congestion in certain areas of the country. Other companies are taking similar steps. “Events have conspired to drive global supply chains towards breaking point,” Reuters reports, “threatening the fragile flow of raw materials, parts and consumer goods.”
According to Barrons, the Delta variant has exacerbated the problem. It reports that specialized-chemicals producer Albemarle is having difficulty sourcing goods from China, Thailand, the U.K. and Australia, while motion and control system maker Parker-Hannifin is grappling with supply chain problems and other COVID uncertainties on a global level. Auto parts manufacturer Aptiv is dealing with its own share of supply shortages, while networking company Arista Networks says it’s “carefully navigating industrywide supply chain shortages.”
How Did we Get Here?
Leading up to the pandemic, the electronic components sector was feeling the effects of strong demand and a robust economy. Lead times on certain products were already extended in 2019, but by mid-2020—when the global pandemic turned out not to be the economic calamity that many companies were anticipating—those timeframes quickly began lengthening. As buyers scrambled to get their needs covered, manufacturers struggled to keep their facilities open and their workers safe and healthy.
This created a glut of orders and a dearth of products across many different categories. With supply and demand out of whack, the situation only worsened as the world’s economies fired back up.
“The flooding in China and the Delta COVID-19 spread impacting Asia are starting to impede supply shipments,” Supply Chain Management Review reported in August. “Manufacturers are going to need to brace themselves for more cargo delays, supply shortages and increased prices in the third and fourth quarters of this year.”
Electronics in Big Demand
When pandemic-related shutdowns forced factories to scale back production—due to unforeseen demand increases for consumer items like personal computers, tablets, TVs, smartphones and gaming consoles—the supply chain shortages quickly followed.
Also, the automotive industry was hit hard with pandemic slowdowns and then a quick recovery and high demand causing automotive electronics shortages. Quest Components is also seeing shortages in raw minerals and materials due to environmental issues related to the mining process, as well as pandemic related shutdowns. It’s the “perfect storm” effect.
With supply shortages impacting most product categories right now, Quest is working hard to ensure its customers’ needs are covered for both spot and contract purchases. In July, for example, the global semiconductor shortage hit a milestone when lead times from OEMs like Nvidia and AMD exceeded 20 weeks. For some microcontrollers and logic chips, those lead times are now extending past 26 weeks, according to TechRadar.
5 Tips for Procurement Success
Based on feedback from Quest’s suppliers and broader industry reports, the company is now bracing for continued shortages into the second quarter of 2022. To buyers who are feeling the pinch of the supply chain shortages, the company recommends these five best practices for navigating the current issues while also planning for the future:
- Take a long-term view on ordering. Time is of the essence on the ordering front, where product that is available tends to move in and out of stock very quickly. That means this is not the time to hesitate when it comes to order placement. The faster you get the goods on order, the better the chances that you’ll get it in 40 weeks, versus 50 or 52 weeks.
- Then, brace yourself for long lead times. Unfortunately, it just comes with the territory right now and everyone is pretty much in the same boat. Manufacturers are pushing things out week to week and month to month. Every time Quest places another order, the manufacturer has added another four to eight weeks to the delivery time.
- Work with a reliable, dependable distributor. The spot buying market can be particularly difficult to navigate right now, and it takes experience and chops to ferret out and tap into the available source of supply. If someone has a fire on their desk that needs to be put out now, Quest is out there searching on their behalf, trying to find the parts.
- Consider adding alternate part sources to your Approved Vendor List (AVL). Make sure there’s a second source listed for all components, parts and equipment that you’re ordering. Explore other options you may not have considered in the past (e.g., a manufacturer that makes a comparable product and that may be more available than your regular source right now). In other words, avoid pinning yourself down to just one manufacturer. Try to keep your options open—particularly when it comes to standard chips, which are made by multiple different manufacturers.
- Place “open orders” on commonly used products with your key suppliers. This is a good way to capture product as it becomes available, versus waiting to place a spot order and hoping that it becomes available within the desired timeframe. This is a viable strategy for buyers obtaining goods that will be used in production on an ongoing basis. If you know you need X number of components now, extend that across 12 months and place an open PO for the goods now. That way, your distributor will know to secure the components for you whenever they become available.
