Public companies that manufacture and distribute electronic components are, understandably, reluctant to put too much emphasis on how dire the current shortage is and how extensively prices have increased. But their OEM customers are not. OEMs and electronic manufacturing services providers (EMS) are concerned their growth for 2018 could be hindered by their ability to get parts.
“We have not missed deliveries yet, but we are on the edge,” said George Whittier, COO at manufacturing and engineering services provider The Morey Corp. “Shutting down one of our customers – say, a Fortune 500 company—because we can’t get resistors won’t go over well.”
Morey’s customers include major automotive companies – a market in which demand for all things electronic has exploded. The auto market isn’t growing at unmanageable rates, Whittier said, but the amount of electronic components in cars are. The automotive industry, like aerospace and defense, is beginning to use more commercial off-the-shelf parts. Automotive companies are competing with major consumer electronics manufacturers for components. “The Apples and Samsungs of the world are winning that battle,” Whittier said.
More and more companies now believe that there is no end in sight for constrained products. “There are broad-based component shortages that are all demand-driven,” said Paul Romano, COO for independent distributor Fusion Worldwide. “We can start with passives—MLCCs, resistors—and shortages are bleeding into tantalum and large case sizes. Manufacturers can’t keep up with demand and there’s no end in sight.”
Distributors and OEMs also report that price increases have been more steep than public reports indicate. “What many suppliers are trying to do is move customers to the newer technologies so they can obsolete less profitable lines,” Whittier said. “So, they’re increasing prices on the legacy products but not on the newer technology. Those devices tend to be smaller so of course you have to buy more parts.”
“We are seeing price increases across the board,” said Chris Kolodko, finished goods global commodity manager at Fusion Worldwide. Fusion tries to maintain its pricing, he said, “but then we hear from the manufacturer that prices are increasing at the beginning of the week. We know this line will increase by 5 to 15 percent. At the very least, we are transparent with our customers so they see what’s going on with pricing.”
Other independent distributors will guarantee prices for no more than 24 hours. The reasons for a prolonged shortage are many. Just-in-time, build-to-order and lean inventory management practices have kept inventory levels minimal for decades Experience has taught component manufacturers to be cautious about adding capacity.