Electronics Supply Chain Shortages Cause Variability in Lead Times
American manufacturers, including EmbedTek, are experiencing a variability in lead times due to transportation delays and material shortages in the global electronics supply chain. Shipping times from the West Coast to other parts of the U.S. have increased 25-50 percent, and shipping costs have increased throughout the supply chain, including ocean, rail, truck, and more. Increased demand for consumer goods related to the increase in people working, and studying at home, has spiked demand for electronic/computer components. EmbedTek recommends OEMs place orders further out with their partners and suppliers, and ask about options for flexible delivery times.
Slowdowns Started in 2020
The ports of entry on the West Coast were under strain in late Q3 and early Q4 2020 due to increased demand, and labor shortages in direct and indirect supporting staff. The situation worsened later in Q4 as the U.S. experienced a surge in Covid-19 cases in general, and directly among workers in the ports. The combination has resulted in delays in ship unloading and transportation throughout the system that delivers goods around the country. This Supply Chain Dive article provides more detail.
Growing Constraint for Raw Materials
In addition to transportation delays, there is growing constraint in the supply of raw materials with costs of steel, aluminum, plastic resin and other materials increasing substantially in the past few months. This article in The Fabricator predicts steel prices will soon hit $1000/ton.
Passive components – such as capacitors and resistors, and active components – such as processors, DRAM, LCD panels and SSD – are also in short supply with costs and lead times increasing. These delays stem from a spike in demand for consumer electronics while U.S. residents stay at home, Covid-19 shutdowns within the supply chain, and other unrelated supply chain disruptions. The extreme constraint of CPUs and GPUs, for example, is largely due to product transitions, seasonal demand, and surging Bitcoin prices. Bitcoin mining rigs use GPUs by the thousands. This article in The Verge shares how Nvidia and AMD are addressing their shortages.
Manufacturers across the supply chain are extending lead times and either increasing costs or warning of imminent cost increases. Nvidia, for example, is expecting a lean supply of GPUs to consumers and partners until late April.
The Effect is Real
Delays and constraints in the electronic supply chain have now made direct impacts on production lines. In early February, General Motors Co announced that the global shortage of semiconductor chips caused the temporary shutdown of four assembly plants.
Most manufacturers who rely on the electronics supply chain will need to brace for impact rather than hope to avoid it. However, they can lessen the damage by placing early orders and determining how flexible their production can be.
EmbedTek ordered a substantial amount of common commodities inventory in November, including DRAM, LCD panels, SSD, and some PCB components. We saw some early signs of the supply chain delays and there was minimal risk to the inventory devaluing through deflation. We have encouraged all of our customers to place orders further out than normal and/or closely communicate demands in 2021.
The delays and constraints are unlikely to clear up before the end of Q2. We’re doing everything we can to protect against production delays and prevent cost increases. And, we’re reaching out to discuss the circumstances specific to each customer and each product. We recommend all manufactures do the same.