In 2021, almost all business sectors have felt the pressure from supply chain issues due to the COVID-19 pandemic. The electronics industry was one of the hardest hit during these uncertain times, and it is still in the process of recovery. The ongoing semiconductor chip shortage is likely going to continue this year and could extend beyond 2022. While this electronics component shortage is leading to massive disruptions in the automotive sector, the deficit has generated supply chain liabilities across the board.
The State of Electronic Component Lead Times in 2021
Earlier in the year, McKinsey predicted that electronics companies would likely go out of stock by April due to the shutdown of factories in China and significant lead times. During that time, many of those companies turned to other Asian countries for raw materials and components. But this did not solve the problem.
In a survey of 217 global leading electronics industries, 53 percent stated that their product launches were delayed or canceled. The rest, 37 percent, stated that the cost of components has gone high. Moreover, there aren’t any signs of improvement in the lead times yet. According to a survey from Levdata, the lead times for electronic components jumped from 16-18 weeks to 22 weeks in September.
Although supply chain management teams are putting a concerted effort towards coping with the rising issues that COVID-19 has imposed on the electronics industry, preparing organizations for a post-pandemic world is very new for most businesses. Moreover, the ongoing trade tensions between Washington DC and Beijing is creating a substantial impact on procuring raw materials for electronics manufacturing.
“When once it was easy to get materials delivered because stock was readily available, the lead times have increased dramatically. They have gone anywhere from a few months to 10-12 months or more.”
-Mary Rose Selser, Purchasing Manager at JEM Electronics
How JEM Tackles Electronics Component Shortage
JEM works with manufacturers and suppliers to procure parts for clients even amidst the supply chain crisis. We work with key supply chains to set bonds and utilize forecasts to avoid as much disruption as possible. Given the current state of supply chain issues, we insist our customers look beyond the six months out in order to deal with the shortages efficiently.
INSIDER INFO
JEM recently received this correspondence from a longtime supplier partner:
“Going into this year, as a result of the Covid-19 pandemic, supply issues have been creating havoc
everywhere. All companies in our industry are experiencing the similar difficulties.
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- Global demand for product has remained high throughout the past six months. In many cases
this has exceeded our capacity to supply and has therefore resulted in order backlogs across
a range of product.
- Raw materials shortages are ongoing for both resins and metals across all of our product.
- Logistics solutions remain compromised globally with a shortage of availability for both
sea and air freight.
- Government restrictions have impacted supply
- Global demand for product has remained high throughout the past six months. In many cases
Due to these continued circumstances, beyond our reasonable control, [Supplier] maintains the position
that it may not be commercially or practically possible for us to continue to meet all customer
expectations, thus putting us is in a Force Majeure position where [Supplier] cannot accept responsibility
for line-down or other related supply chain costs.”
At JEM, we’re following proven practices to minimize the impact of raw material shortage for our customers in these trying times. Some of the essential practices we follow include:
Kanban Release Programs
Although Kanban is a framework meant for software development, the approach can be applied across different business processes to innovate and stay efficient. The objective of a Kanban model is to create a continuous workflow, which results in continuous improvement and stability.
Kanban tackles this issue by making development transparent and ensuring team members know the current state of the project. At JEM, we take inspiration from this ideology to constantly innovate and strengthen supply chain management to get our customers the parts they require.
Blanket Order Program
A blanket order program is a method where the customer places an order with a supplier and agrees to multiple deliveries over a certain period.
The advantage of a blanket order is that we can set up contracts with the suppliers on recurring parts for predetermined prices. In addition, since there is no need to order all parts at once, our customers are not burdened with storage and can order on a per-need basis.
Forecasting
Forecasting in supply chain management is all about predicting demand, supply, and pricing. However, there is no guarantee that a forecast will work out, and we saw that first hand when COVID-19 struck. Setbacks are a part of forecasting and at JEM, every possible variable is taken into account.
We ensure that our customers stay protected from the impact of uncertain circumstances. With a wealth of experience gained over the years, we can produce accurate forecast reports to keep the supply chain moving for our customers even during disruptions.
Bonds
Bonds are written agreements that hold two or more parties on a certain trade. Bonds ensure that a supplier or manufacturer provides a certain quantity of parts for a certain fixed price, and this agreement is written in a legal bond. In markets where uncertainty is common, bonds help bring peace of mind for both customers and suppliers.
NCNR’s to Cover Raw Material Needs for Customers
NCNR or Non-Cancellable non-Returnable applies to goods or parts that are not cancellable or returnable by the customer. Usually, the customer and the supplier agree to the NCNR policy when the supplier needs to modify a product specifically for that customer. In such cases, if the customer doesn’t take the product, the supplier will not be able to resell that customized product to another customer. NCNR is a staple in the semiconductor business.
Minimizing the Impact of Supply Chain Crisis
While it is often challenging to avert the supply chain crisis entirely, it is critical to establish a well-thought plan and put it in action to lessen the impact of the supply chain crisis and keep adapting to the change. At JEM, our intuitive forecasting, planning, and pre-emptive measures are helping our customers procure raw materials to keep their production running and contain their losses during uncertain times.
