The New Buffer Stock Era for Supply Chains

The benefits of buffer stock are well known across the business landscape and have long been seen as a strategy to secure supply chains. In 2022, however, the use of buffer stock to shore up critical inventory such as electronic components, semiconductors, have gone from being a supply chain luxury to being an absolute necessity.

A Year of Supply Chain Risk

Although many analysts before 2022 believed that there might be a degree of recovery following the COVID-19 pandemic, global supply chains have seen little relief—and in many cases challenges only intensified. Prices nearly across the board for critical electronics have seen historic increases. STMicroelectronics, for example, according to an article in EPS News, announced in Q2 that there will be a 15% price increase affecting all product lines moving forward, citing rising raw material, energy, and logistics costs as the primary reasons.

Lead times have also seen historic increases. Microchip illustrates one example of this, which has seen an average price increase of 10% across its product lines, with individual increases ranging between 5% and 40%. According to a report from Fusion Worldwide, new orders from Microchip now come with a roughly 50-week lead time, as well as a requirement for order to be no cancel, no return (NCNR).

Unexpected disruptions have also wreaked havoc on the global supply chain. The Russia-Ukraine conflict, beyond the obvious concern for loss of human life, has done much to disrupt the flow and manufacturing of critical materials throughout the world. Ukraine, for example, is responsible for as much as 70% of the global supply of neon, which is critical for semiconductor manufacturing. The U.S., currently striving to increase its own chip output, has historically sourced as much as 90% of its neon from Ukraine.

The Benefits of Buffer Stock

In a year that has seen ample amounts of both known and unknown supply chain risk, buffer stock of electronic components and semiconductors (for those lucky enough to have it) has been one of the only ways manufacturers have been able to meet production schedules. Using this strategy, the manufacturer can bypass lead times altogether, as well as price increases caused by shortages, logistics costs, inflation, or third-party markups that have been seen as drastic as 2000%.

To implement a buffer stock strategy, however, several factors must need to align. First, the manufacturer must have the budget flexibility to make large single orders of inventory to last several years at a time. Then, once the inventory is required, the manufacturer must then have the infrastructure available to store them for long periods of time in optimal condition. This often requires far more than just warehousing space. Some electronic materials such as raw die and wafer require highly regulated storage environments free of moisture or temperature fluctuations.

Partstat Inventory Ownership Solutions Unlock Buffer Stock Benefits for Anyone

For those manufacturers that do not have either the budget or the infrastructure to acquire buffer stock, Partstat can offer an Inventory Ownership Solution tailored precisely to their needs. Through our solution, Partstat customers can acquire all the buffer stock needed for their schedules today, at today’s prices, with no upfront costs. Plus, all Partstat customers can store their inventory in own own state-of-the-art storage facilities that include climate-controlled warehousing, desiccant dry cabinets for die and wafer banking, and even the industry’s only custom storage vault designed specifically for sensitive electronics storage.

Buffer stock has historically been a luxury only the largest manufacturers with the largest budgets could afford. Today, however, Partstat can ensure almost any manufacturer can have access to the benefits of buffer stock. In 2022, especially, such solutions could not be any more vital.