Allocation: The Forgotten Supply Chain Disruptor

OEMs across the world are gradually coming to understand the importance of staying ahead of obsolescence in the acquisition of critical electronic components – and the consequences of not accounting for it. However, especially in competitive markets where component demand far outweighs an OCM’s ability to meet supply orders, there is another variable that can be every bit as disruptive to an OEM supply chain: component allocation.

What is Allocation?

An electronic component or semiconductor does not have to be transitioning toward obsolescence to be difficult to acquire. Extended lead times are common for various reasons, and usually are well-accounted for in initial OEM projections. But the best projections in the world can never account for the sudden and severe impact certain scenarios, such as the sudden shortage of a common high-demand component, can have on fulfillment lead times.

Projection analytics are usually, more or less, built on assumptions that the current state of the market will remain consistent throughout the entire life cycle of an OEM product. Obviously, especially in today’s market, this is rarely the case. In extreme cases of high demand versus limited supply, leads can balloon to as much as a year or longer. Should an active electronic component’s lead time extend beyond 16 weeks, it is considered to be on allocation.

According to industry experts, this trend is going to get worse before it gets better. This is the case, ironically, as a result of healthy market growth. In 2017, the Semiconductor Industry Association reported that global semiconductor sales were up 22.6 percent, which would reflect the largest year-on-year industry growth since 2010.

In a recent interview with Electronics Weekly, ECSN chairman Adam Fletcher reflected on the increasing prevalence of allocation. “Assuming that growth will continue at a similar pace…in the second half of 2017,” he says, “manufacturer lead times are likely to continue to extend [and] organizations whose procurement people are not sufficiently diligent may be caught out. Customers need to sensibly review their order cover to reflect the reality of these extending manufacturing lead times to avoid potential delivery problems later in the year.”

Partstat Keeps OEMs Ahead of Obsolescence AND Allocation

OEMs should never underestimate the significance component obsolescence plays in production – but it should also not be the only variable considered when trying to bring innovative new products into consumers’ lives. As the allocation issue proves, an electronic component or semiconductor does not have to be transitioned into obsolescence to disrupt a supply chain and potentially compromise millions of dollars in downstream revenue.

This is why we have designed the Partstat BOM Monitoring Solution to account for both obsolescence and allocation.

The secret to our unique solution is our access to data. For over a decade, Partstat has been collecting data on electronic components and semiconductors. In fact, our open-source Big Data warehouse Partstat consists of over 8 billion rows of current historical data on over 25 million unique electronic components and semiconductors. From there, this data collected from over 2,000 participating global suppliers is combined with our own advanced algorithms which allow customers to easily price, monitor, and, with our help, confirm the life cycle status – including trends toward allocation – for virtually any electronic component, semiconductor, or peripheral product in a real-time model.

Implementing a proactive, technologically-advanced obsolescence management strategy does not have to consume additional working capital, nor does it need to occupy your employees’ limited time and energy. Our BOM Monitoring Solution proves this, and since its introduction, we have helped hundreds of manufacturers turn obsolescence and allocation from significant sources of financial strain into deflationary issues.