Raw Material Shortages Will Prompt Last Time Buys
If asked what determines the manufacturing cost of an electronic component, many might be surprised to discover that the most capital is spent during raw materials acquisition. This holds particularly true for passive components such as multilayered ceramic chip capacitors (MLCCs), which incorporate a variety of materials into their designs including nickel, copper, aluminum, zinc, palladium, silver, and much more.
Although the costs associated with these materials are subject to fluctuations depending on factors such as global market economies, tariff costs, and political stability, raw materials also have an added existential variable associated with them that slowly becomes more relevant with each passing year: their finite availability. While science has made great strides in developing new conductive materials that leave a smaller footprint in regards to environmental resources, there always remains a degree of inevitability associated with the foreseeable future. As each material continues to decline in availability, the costs will continue to rise until either component manufacturers can no longer support the strain, the market moves toward a viable and functionally equal alternative, or the resource is drained altogether.
While we are still a significant ways from the “doomsday” scenario, longer trends are indicating that the tipping point will occur sooner rather than later, one material at a time. Palladium, for example has nearly doubled in price between April 2016 and January 2019. Ruthenium, which is used for resistors, has increased in price over a whopping 550 percent since June 2016. These shortage issues, combined with the escalating demand across virtually all industries for generic electronic components, creates a highly unfavorable market for equipment manufacturers that can ultimately stifle innovation.
And the longer an equipment manufacturer chooses to delay acquiring the inventory, the more significant the costs will become.
A Partstat Last Time Buy Solution is designed for an electronic component market that takes these market realities extremely seriously. By allowing Partstat to purchase the last time buy inventory on our customer’s behalf, they can keep 100 percent of their working capital on hand to address whatever pressing initiatives the company wishes to pursue in the most ideal market conditions. Whether two years of last time buy inventory is needed or ten, Partstat is prepared to cover the upfront costs in full, plus all of the storage, shipping, and handling responsibilities dictated by the customer’s needs and schedule.
Note, this is not a solution that will permanently insulate a supply chain from disruptions related to the depletion of a finite natural resource; instead, it guarantees that the inventory customers require to seamlessly complete their products’ production runs will be there as long as necessary to either complete the product’s lifecycle, or for the market to discover an alternative.
While other electronic component manufacturers will be forced into costly product redesigns, third-party vendors with high markups and less-than-ideal commitments to transparency and trace-ability, a Partstat customer’s supply chain will continue unimpeded until the OEM is ready to make a change. In fact, with the challenges ahead for our industry, a Last Time Buy Solution or similar obsolescence management strategy might be the only way forward.