To say the last few years for the semiconductor supply chain have been turbulent would be an understatement. Supply-demand stabilization continues to swing between the two extremes of undersupply and oversupply. Core challenges impacting the electronic components industry continue to derail mitigation attempts to resolve remaining areas of constraints and excess.
Sourcing electronic components in relatively stable conditions can be challenging for procurement teams. Global shortages and problematic excess inventory intensify this complex process. Real-time price and lead time fluctuations can happen rapidly. This was seen most notably throughout the global semiconductor shortage, where Covid-19 lockdowns across manufacturing powerhouse China quickly cut off semiconductor supplies.
Quick market shifts within the electronic component supply chain have made sourcing difficult for procurement teams even beyond the last few years. Over 2018 and 2019, the rising use of multi-layer ceramic capacitors (MLCCs) in automotive applications and other industries began putting pressure on existing supplies. At the same time, several original component manufacturers (OCMs) began decreasing production capacity for MLCC lines while others announced their obsolescence. The combination led to an MLCC shortage, a prelude to the global semiconductor shortage a year later.
“The reasons for these semiconductor bottlenecks include limited capacity, high demand, and overordering–which means they are likely to persist through 2023,” reported McKinsey & Company. “The most extreme pressure will be on mature chips for everyday applications, such as cars, electronics, home appliances, and medical devices.”
Geopolitical instability will likely continue to affect the global supply chain, contributing to mismatches in supply-demand across chip sizes, industries, and production facilities, according to McKinsey & Company’s report. “Many companies are constrained by limited procurement setups that focus on just a few suppliers and distributors and miss many others.”
That doesn’t come as much of a surprise. Manual processes are used far more in the electronic components industry than new, digital procedures. Think of close relationships with sales representatives at electronic component distributors where communication is done through email or phone calls. This method is preferred over purchasing components from an online electronic component marketplace.
Manual processes of recording data, such as hundreds of columns in Excel or Google Sheets, cause good component offers to become lost, unnoticed in an ocean among billions of other market data points. The electronic component supply chain is far too global for these traditional processes to be effective or time efficient. Worse still, human error occurs at a worrying rate with 60%-80% of failures citing human mistakes as the cause.
“Manufacturers need certainty of supply and must identify and onboard new suppliers rapidly,” McKinsey & Company’s report explained. “Continuing supply constraints present a significant challenge. Furthermore, many companies are constrained by limited procurement setups that focus on just a few suppliers and distributors and miss many others.”
What is the solution? It lies in using procurement tools that help optimize the purchasing process. Unstable supply and demand in the global electronic components industry has led to a growing adoption rate of digital procurement tools.
The McKinsey & Company report continued. “By moving away from manual approaches, teams can scan hundreds of proprietary, public-source, and commercial databases simultaneously helping them to obtain the right chips in a fraction of the time formerly required.”
Specifically, the article goes on to address the use of artificial intelligence (AI) within procurement tools. With AI, buyers in the industry can research electronic components, their market availability, active alternates, obsolescence status, and more without waiting for their sales representative to provide them with the same limited scope of information on just the stock they have to offer.
Some digital tools provide an additional layer of data through predictive analytics. Through predictive analytics, buyers can be made aware of future chokepoints or disruptions that could impact the supply-demand status of a particular electronic component. With predictive analytics, like generative AI–the current fan-favorite AI application–the application grows smarter with the more data it learns from.
Its predictions will become more accurate, helping buyers and supply chain management professionals quickly and strategically formulate procurement strategies to avoid challenges such as electronic component obsolescence and shortages. This will help prevent reactive strategies to disruptions such as overreliance on just-in-time (JIT) manufacturing and double ordering to avoid long lead times. These reactions can contribute to future challenges, such as excess inventory, which must be mitigated before it causes a significant monetary drain through warehouse storage costs.
Digital procurement tools will help buyers quickly streamline the purchasing process. Insights from predictive analytics will aid in proactive strategies to avoid growing challenges such as instant obsolescence, where an electronic component has no existing supply for a last time buy (LTB) and becomes obsolete “instantly.” Instant obsolescence is one challenge expected to grow after the global semiconductor shortage due to OCMs decreasing or ceasing production on mature product lines to prioritize more lucrative ones.
AI and digital tools are expected to grow in use due to their capabilities of greatly supporting human decision-making across all enterprise sectors. Continued integration of applications like ChatGPT in corporate settings will only push for continued digital technology adaptation as companies that utilize these tools outpace those that rely on manual processes.
No matter what procurement tool set you need, Sourceability’s digital tool suite is here to provide. Whether it's insights into market standing, discovering inventory levels from multiple sources quickly, or access to over a billion component offers, Sourceability has a variety of solutions for everyone.
With over 3,500+ traceable and vetted suppliers, Sourcengine is the leading e-commerce site for electronic components for professional buyers. New updates to Sourcengine’s API allow users to integrate Sourcengine’s global marketplace into their enterprise resource planning (ERP) system without having to leave it. Users can schedule deliveries up to 12 months in advance or search for specific components based on design to find the most optimal part for their project through Sourcengine’s partners, such as Calcuquote and Ultra Librarian.
Integrated with Sourcengine, Sourceability’s innovative bill of materials (BOM) management tool, Quotengine can help users quickly find offers up to 4,000 parts long for their BOMs. Through Quotengine, procurement teams can instantly discover part offers on Sourcengine with technical datasheets, price, lead time, and more by simply uploading their BOM. With Quotengine’s filter function, users can sort part offers based on their specifications, finding deals that best suit their needs.
Want to get the scoop on the electronic components market? Datalynq is Sourceability’s market intelligence tool that helps users keep their eye on shifting market trends, electronic component availability, inventory levels, and possible risks associated with components such as sole source parts or not recommended for new design (NRND) notices. Datalynq uses real-time market data from Sourcengine to uncover insights into the electronic component supply chain to help users make proactive decisions in case of upcoming disruptions.
Sourceability will continue to provide innovative, digital solutions to the electronic components industry to help improve processes and simplify traditional strategies. Want to learn more about our digital tool suite? Reach out to our experts to learn more!