Component Shortages to ‘Last Well Into 2022,’ Execs Predict

The challenges related to semiconductor and other component shortages will be with us for a considerable time, according to more than a dozen manufacturing executives. We asked these decision-makers and their partners about current issues; the impact of shortages; how long the scarcity will last and how they are protecting themselves from counterfeit goods. We also asked what they see as a long-term solution for the severe boom-bust cycles typical of the electronics industry.

The long haul

The common consensus is this will be a long haul with problems into 2022 or even longer. “I can’t believe that the situation is going to improve before 2022,” said Pascal Aubois, plant manager of GDL Circuits (Mexico). “We are currently able to keep our SMT lines running but we have stopped the weekend shifts. It’s more and more challenging to plan production weeks ahead and on top of the challenges with components we are facing logistics issues and very long lead times for printed circuit boards coming from Asia by sea.”

The issue of plant closures in Malaysia due to Covid-19 is not helping either, he added. Carl Hung, CEO of Season Group adds, “the Covid-19 pandemic has significantly rattled the supply chain and it will take at least a year until there is any recovery.”

“We expect this drama to continue until at least the end of this year and probably well into the first quarter of 2022 as we still don’t see demand falling off in any of the key industries or supply rising dramatically,” said Rainer Koppitz, CEO of KATEK Group. “And let’s be clear, components are just one part of the supply chain under stress. There are issues with other custom parts like printed circuit boards, not to mention the exponentially rising costs of freight due to increased demand and reduced capacity.”

Koppitz explained these supply constraints are stressing relationships with customers as costs escalate, curtailing growth in revenue and profit as volumes are constrained and margins eroded. This is stressing cash flow as working capital demands explode.

“This is probably the biggest challenge facing the industry right now and it is impossible, as an EMS company, to not be affected,” concurred Bruno Racault, CEO of ALL Circuits. “The shortages are causing us to book more as people commit orders further ahead, and to bill less, so growth in our demand cannot be met. This has an impact on cash, on staff and on our customers. More than ever we need to be open and collaborative with all the stakeholders – customers, our team, and our entire supplier base.”

The semiconductor industry is not a fast moving sector, he added, and while there has been a flurry of new fab announcements there won’t be an immediate benefit from those projects.

Mark Wood, CEO and president of Canadian EMS Microart, sees “little light at the end of the tunnel. “According to Mintel, some analysts predict the chip shortage will last through until the end of 2022. Others estimate that supply won’t catch demand until 2023-2024. That’s a long time.” Wood added, “we recognize that we cannot solve the global chip shortage. However, at the end of the day, all we really care about is getting things made for our customers, even in times of crisis. This is what saw our customers through the pandemic and this is what will see them through this crisis.”

Cash is king, or is it?

The role of EMS companies is problem-solving and managing disruption. Many companies, such as Zollner and KETEK, have developed special teams to focus on searching for the devices that are available.

“We are now in a tense situation in production supply due to disruptions caused by delayed material deliveries,” said Alfred Birgmann, Zollner’s vice president for global procurement. “We currently expect the situation in the area of passive components to relax mid- 2022 and in the active component area not until the end of 2022 or the start of 2023.”

Long-term, stable demand planning is critical, he added. “We must be able to transmit demand numbers for at least 12 months and even better, 24 months. Most critical is that suppliers with very long production lead times, 120 days or more like semiconductor manufacturers, have long-term and plannable transparency. ‘Pipeline is king’. On the other hand, we need to rethink warehousing due to the constant disruptions in the global supply chain and build in more security, which in the end also means more flexibility. We used to say ‘cash is king,’ but today the motto is ‘stock is king.’”

“We are trying to select the escalations as early as possible to react quickly with solutions like second sources, availability checks in global markets, re-design proposals — all to serve our customer on time,” said Christoph Antener, group director for strategic sourcing for KATEK Group. “And of course we step in at group level in those escalations with manufacturers and our suppliers to get at least some allocated minimum quantities for our sites.”

BMK knows how to handle itself during a crisis, said Susanne Gujber, head of purchasing. “Since last summer, we have been working through this predicament with the assistance of our long-term manufacturer and supplier strategies. We can make quick decisions and adapt well to the constant changing issues due to our close and direct customer connections.”

Procurement, she added, is not unevenly dispersed across many areas, but rather focused in one location. “Our lead buyers always have an eye on the market and are networked very well with one another. Our transport management team is a huge benefit for us and provides an absolute advantage for reliable shipments. Despite everything, the situation remains very challenging for us and the whole EMS business. With each passing month, the circumstances become even more arduous and will demand a lot from us throughout the remaining year.”

New fab announcements, concluded Koppitz, don’t help in the current situation. “If there are no chips, there are no chips. Full stop. And then some sort of Wild West happens — and after the big shootout we will see who survived.”

Source: epsnews.com

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