BUYERS MAY FACE RISING PRICES AND LONGER LEAD TIMES IN 2021

May 19, 2021

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Buyers are concerned there could be more shutdowns of electronics production in 2021 as uncertainty created last year by the pandemic carries over into 2021.

Possible shutdowns of component production because of coronavirus, rising prices for copper and other metals and potential shortages of multilayer ceramic capacitors, power MOSFETs and other components are some of the supply chain challenges that electronics buyers say they will face in 2021.

Covid-19 will remain a front-and-center purchasing for many buyers in 2021 as the number of cases of coronavirus reached record levels in the U.S. and other countries in the fourth quarter stoking concerns that there could be more shutdowns or slowdowns in electronics production.

Judy Kile, senior manager, GE Healthcare Sourcing, based in Chicago, said she expects Covid-19 will continue to impact the supply chain and ability of suppliers to produce and deliver components in 2021.“We will continue to monitor the supply chain closely through the first half of 2021 for allocation, lead time extensions and price fluctuations,” said Kile. “We continue to see regions impacted by Covid closures and lockdowns as well as natural disasters and economic influences which have the potential to tighten the supply chain for some suppliers,” she said.

 

Jamey Mann, director of global purchasing at electronics manufacturing services (EMS) provider Kimball Electronics, based in Jasper, Ind., said the unpredictability of this pandemic has the “potential to again cause negative influences on supply.” He said as the number of Covid-19 cases have increased in the fourth quarter some countries could decide to reinstitute lock down measures in an effort to reduce the spread of the virus.

“What effect, if any, that will have on manufacturing is yet to be determined,” said Mann. “Measures that could be implemented by government such as shutting down all businesses for multiple weeks at a time can and will have a negative impact,” he said.

Shabnam Shaghafi, vice president of supply chain for EMS provider Benchmark Electronics, based in Tempe, Ariz., said it is difficult to predict the impact that the pandemic could have on supply in 2021 because of the “fluid nature of Covid-19.” She said suppliers have worked hard to overcome challenges by adopting new ways of operating and improving their communication. The efforts helped reduce the impact of the virus on the supply chain date to date.

“We believe that the heightened supply chain awareness and knowledge the pandemic has brought, will better position us to continue managing our business through any future challenges that may emerge,” she said.

Expect shortages in 2021
With or without the pandemic, another potential issue for electronics buyers in 2021 could be component availability. Supply could be tight and shortages of some parts are likely because the global economy is restarting. Several key segments such as automotive, consumer and mobile 5G are quickly ramping, said Shagnafi. Some buyers fear that there could be shortages of some of the same parts that had availability issues 2017-2018, including MLCCs, MOSFETs and chip resistors.

“The increase in demand from these markets has led to raw material shortages and capacity constraints, resulting in extended lead-times on some electronic components,” said Shaghafi. “Products such as MOSFETs, insulated gate bipolar transistors (IGBTs), sensors, microcontrollers to mention a few, are anticipated to stay constrained through the first half of 2021,” she said.

The good news is that suppliers have added capacity since the 2017-2018 shortages. “Over the past 18 to 24 months there was significant manufacturing capacity added by the semiconductor industry” as well as passives manufacturers, said Mann. As a result, available manufacturing capacity in 2021 will be at all time high points, according to industry market analysts, he said.

Shaghafi said suppliers are working on increasing capacity, but it may take some time before standard lead times return. “We have been working feverishly with our suppliers, internal teams, and customers to provide as much up and downstream visibility as possible in an effort to secure supply and minimize any disruptions,” she said.

Kile said in early November that there was “sufficient capacity for our semiconductor requirements based on an operational industry.” She said many suppliers that experienced supply constraints in the second and third quarters of this year implemented plans to improved supply chain robustness.

Will metals tags rise again?
Some buyers are concerned about the rising prices of copper and other metals. Kile said rising material prices have already impacted the prices of electromechanical devices and passives components.

However, raw material prices are actually down compared to several years ago. For instance, copper prices increased in 2020, but “when you look at the five-year trend, current pricing is still below the highs the market saw in 2017 and 2018,” said Mann. Ideally manufacturers of products containing metals such as copper will base any price movements on the five-year trend instead of the one-year trend, he said. Several suppliers passed along price increases in 2017-2018 but did not make “comparable reductions in market prices” when material prices dropped in 2019, said Mann.

One issue that will continue to be a source of concern in 2021 is supply base consolidation. Some buyers say consolidation results in an overall healthier supply while others say too much consolidation can result in less competitive environment.

“A large portion of the consolidations that have occurred over the past five years has been complementary, where the combined product portfolio of both parties is creating a more robust technology offering under a common leadership team,” said Mann. However, there are some cases where “both parties have common solutions so in theory, over time, competition could be reduced as competing solutions are eliminated or reduced,” he said. With consolidation there can be “competitive leverage reduction as fewer suppliers in the market afford less data points to use in negotiations,” said Mann.

Kile said competition in the supply chain is healthy “both commercially and from a supply chain risk mitigation perspective,” said Kile. However, the mergers and acquisitions since 2016 have driven a significant number of end-of-life notifications on components “which can negatively impact a company’s long-life cycle business.”

Shaghafi said when competition is eliminated because of a merger or acquisition, it adversely affects customer prices and product choices.

“When this happens, we often see that product availability is impacted due to rationalization of products, which in effect leads to end-of-life of redundant or similar products,” she said. As a result, an alternative component may have to be qualified or a board may have to be redesigned. However, there are cases where supplier consolidation may help increase a customer’s leverage by allowing for consolidation of spend and increased negotiation power, said Shaghafi.

Another challenge that will likely carry over to 2021 is a continuing trade war between the U.S. and China. “The trade war between China and the U.S. has resulted in increased product cost to some customers in the U.S,” said Shahafi. She said Benchmark has been working with its OEM customers on “alternative strategies and solutions” outside of China and within southeast Asia or India to maintain low production costs and minimize customer impact.

“In some cases, no immediate alternative outside of China exists, and therefore we must continue to source with China suppliers while we position ourselves to further develop our global supply base and close any potential supply chain gaps,” said Shaghafi.

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