The current high demand for electronic components has ‒ ultimately ‒ led to a severe shortage. While this has had a detrimental effect on supply chains, many manufacturers believed this would be a temporary situation. However, this component shortage may be here longer than expected.

In today’s market, the supply and demand imbalance is defined by too much demand. Component manufacturers (OCMs) have had to face reality of not being able to keep up with the historical demand for their parts, resulting in the extreme tension in their customers’ supply chains. Staying comfortable with the way production used to run is only going to slow it down even further, and it’s essential that original equipment manufacturers (OEMs) adapt to the ramifications.

Growing Pains

At first glance, this seems somewhat strange considering there has been exponential growth in the electronic component market with no sign of stopping. But, to understand the complete picture, it’s important to realize there are other ‒ more recent ‒ factors that are causing the shortage.

“Semiconductor and tech mergers reached an all-time high in 2016 and formed some massive companies. These deals were viewed favorably by the market, but they’ve had a detrimental effect on the supply chain,” explains Barbara Jorgenson from EPSNews. “Overlapping products are consolidated after a merger and low-margin lines are likely to be axed. Combined with a widespread uptick in demand, the electronics supply chain’s been caught with a dearth of inventory.”

The demand for components has definitely risen, but the impact supplier mergers and acquisitions (M&As) have caused cannot go unnoticed. With the expectation this shortage will last well into 2019, OEMs are keeping their eyes peeled for the future.

Compounding Issues, Compounding Risk

The sources of this particular shortage have been discovered, but each year the pressing issue is that hundreds of thousands of electronic components and semiconductors transition toward obsolescence. Manufacturers are having to deal with the struggle of handling this drawn out shortage, as well as endure any unexpected obsolescence issues that may occur. For OEMs, this has been difficult to manage, and has resulted in their supply chains taking on substantial, unnecessary risk. Because of obsolescence, equipment manufacturers have been forced into adapting reactive, rather than proactive, obsolescence management strategies.

It did not always used to be this way. During the 1980s, End-of-Life (EOL) notices were consistently sent out by OCMs so their OEM customers could purchase and maintain as many parts as they required. Nowadays, OEMs receive EOL notices on an industry-wide platform, and the performance of these parts is not guaranteed to last through the decades. When maintenance and repair is needed on a piece of equipment, that responsibility lies entirely with the OEM and its subcontractors.

This creates several problems for the OEM. When parts go EOL, these companies now must compete with consumer, automotive, and other industries to acquire them. Commercial off-the-shelf (COTS) parts are discontinued more rapidly than the MIL-grade parts that were standard pre-1990, so EOL events are increasingly common. To secure the necessary inventory, long-lifecycle equipment makers must spend cash upfront – which is taken from their limited pool of working capital.

All of this doesn’t even take into account the issue of allocation, which can extend lead times often well beyond 30 weeks and sometimes over a year. This can contribute to additional major production stoppages and delays. Make no mistake: allocation can be just as much of a showstopper as obsolescence.

What You Can Do?

To combat these barriers, OEMs should be taking advantage of Partstat’s BOM Monitoring Solution.

We offer the most proactive BOM Monitoring strategy on the market that gets OEMs ahead of all of these potential issues. This solution provides 24/7 monitoring of obsolescence, predicts allocation, and offers real-time confirmation of lifecycle status by our team of BOM specialists.

Our intelligent automated system reviews your bill of material every 15 minutes and scans the global marketplace for any changes to keep you in front of any obsolescence issues that may arise. Our predictive algorithms will even provide you with advanced notice when parts are trending toward allocation.

The goal of our organization is to make sure you always have a steady flow of inventory to support production and service commitments. The current state of the market has risk no matter where you look, but Partstat BOM Monitoring will ensure the lifecycles of your products no matter what challenges lie ahead.