The 80/20 rule
To some extent, designers and engineers have contributed to the shortfall. IP&E components make up about 80% of a circuit board design. Designers have largely left that 80% alone as they introduce new versions of their products; focusing on the 20% that provides differentiation.
“It makes sense that engineers would reuse a bill of material for their next design,” said TTI’s Knight. “IP&E parts are readily available and used across many products. They’ve consistently reduced cost over time. You’d be crazy not to take advantage of that.”
“What many people haven’t realized are the underlying economics of the supply chain,” Knight continued. “We’ve gotten to the point that all this slack has been taken up by an improving market. We’ve gotten to the point where we’ve run out of capacity and prices are going up.”
MLCC prices increased more than 20% in 2017; according to SeekingAlpha, and price strength will continue into 2019.
To buy or not to buy
Inventory continues to be a hot button in the electronics supply chain. Component makers prefer not to manage the bulk of their inventory, leaving most of that work to distributors. Publicly traded distributors tend to keep a tight rein on their component supplies as market analysts frown on inventory build-up.
Distributors have been applying the lessons learned since 2001 for component allocation. Resellers keep track of their customers’ historic consumption to flag any anomalies. During the dotcom bubble, customers double ordered — placing the same order with two distributors, or with a distributor and a component supplier. Double ordering made the inventory glut worse when the bubble burst in 2000.
“We see what our customers are holding and match output to demand,” said Arrow’s King. “We aren’t building inventory where we don’t need it, and we have considerable breadth across geographies, customers and end markets.”
Privately-held distributors have more flexibility when it comes to inventory build-up. TTI and Future Electronics traditionally hold high levels of stock and invested before the uptick, executives said.
“I think it comes down to whether you have the luxury of taking the long-term view,” said TTI’s Knight. “We do, and we like what we see. There is zero doubt that that the electronic content in products is only going to increase. Even in a down cycle, TTI has been able to invest in inventory, warehousing and head count.”
In addition to IP&E devices, the discrete semiconductor supply situation is also of concern with MOSFETs, diodes and transistors in popular package types being increasingly constrained, said Future Electronics in a release.
“Maintaining customers’ continuity of supply remains the top priority of Future Electronics. We are proud to be the leading capacitor distributor in the world,” said Jacques Hing, vice-president, worldwide, capacitors at Future.
In spite of the ongoing challenges, the current market has been very good for component makers and their distributors. Arrow's Q2 2018 sales increased by 15%. “Arrow is adding customers at unprecedented rates,” said King. “Products are consuming more technology and manufacturers are, in turn, selling them into untraditional markets.”
The only limit to future growth could be a dearth of components. Communication with customers, executives say, is essential. “I think customers are waking up to this new reality and are looking for partners to help guide them,” concluded King.
Engineering a Solution to the IP&E Shortage: Supply challenges are not something that designers typically concern themselves with, but this is one time when they should.
How the Supply Chain Developed an IP&E Shortage: What distinguishes this scarcity from others is the broad base of markets that are desperate for IP&E.
Passive component shortages drive new supply strategies at Kemet: Currently, many MLCCs and resistors in the industry are on allocation or are quoting lead times well into 2019. But the supply shortages are spread across capacitor technologies.
AVX: Component Shortages Require Better Communications, More Transparency: A common thread running throughout the component market is rising demand, which crosses a variety of end market sectors, contributing to passive component shortages.
Murata: Ceramic Capacitor Lead Times Continue to Stretch; Parts Go EOL - Ceramic capacitor manufacturers including AVX, KEMET, Taiyo Yuden and TDK are all quoting extended lead times and managing product allocation.
Vishay Intertechnology Diversifies as End-Markets Expand- Here’s the first of several supplier profiles on key players in the IP&E market.