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It's time to stop just-in-time thinking

A global shortage of electronic components is impacting the product development industry in Australia. Beginning with temporary shutdowns of electronics manufacturers at the height of the pandemic, a series of cascading consequences has seen the situation deteriorate rather than improve as factories came back online.

Soaring demand for electronic consumer and commercial products and panic buying of semi-conductors has led to a crippling shortage of components that is now impacting every industry sector, including medical devices and other high-reliability products that Circuitwise specialises in. And the situation is continuing to worsen.

“We previously used to advise clients to purchase stock up to six months in advance of requirements,” said Circuitwise CEO Serena Ross. “Based on current conditions, we are now pushing that out to a year and a half.”

While shortage/surplus conditions typically go through cycles, analysts are predicting this pandemic driven one will be longer than normal, with supply not predicted to catch up to demand until late 2021 at best and possibly extending well into 2022.

“While some manufacturers can afford to scale back demand, what is really crippling our customers is the price spike on critical components such as microcontrollers,” Serena said.

“This is a particularly bad issue in the medical device market where it is not possible to substitute alternative components due to regulatory requirements.”

According to Circuitwise’s Supply Chain Lead, Rob Bingon, the price of a typical microcontroller has jumped from a few dollars per item pre-pandemic to up to $50 now.

“For customers that are targeting an overall unit cost of say $80, this price is not sustainable,” Rob said. “Everyone is scrambling to find supply at the moment, but there is only so much to go around.”

Serena said the best advice she could give to customers caught out right now was to plan for a sustainable return to market normality.

“Right now, electronics components suppliers are rewarding customers with purchase orders extending out one or two years, by prioritising them ahead of spot market purchasers,” she said. “Product manufacturers need to move away from the just-in-time thinking that has characterised supply chain management in recent times, and work on improving their forecasting and product road mapping to meet the new global reality.”

See the full article on this topic by Serena Ross, published in:


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