There's been some easing in global supply chain disruptions for electronic components, but there is still cause for concern. An increased level of global tension, new government regulations, and other factors threaten to continue the trend of supply chain disruptions.
Here are the leading causes of supply chain disruption we’re seeing right now.
Raw Material Shortages
Despite the availability of components in some sectors, there are still severe shortages of raw materials to make those components. This has kept prices higher than normal. Even as demand slowed, many OEMs saw price hikes hitting low double-digits.
In fact, the sensor market as a whole is seeing price increases. For example, Taiwan Semiconductor Manufacturing Co. (TSMC), a major chip supplier for AMD, Apple, Intel, and Nvidia, warned companies of a significant price increase in 2023. While seeing a sharp decline in demand at the end of 2022 and the beginning of 2023, demand has rebounded in hot sectors, such as high-performance computing (HPC) to support the burgeoning Generative AI sector.
Continuing conflicts between Ukraine and Russia continue to be a significant cause of global supply chain disruption due to the impact on raw materials. Ukraine produces about 70% of the world’s supply of neon used in the laser that etch circuits. Russia produces more than a third of the world’s palladium, used for plating contacts and connectors, among other things.
Geopolitical Tension
Besides the Russia-Ukraine war, other tensions — between China and the EU and the US in addition to concerns about Taiwan — have seen many nations turn inward, worried about supply chain disruption. While countries look to increase domestic production, this process will take time.
Any increased tension can quickly disrupt supply chains, forcing manufacturers to look for alternative sourcing, often with little advance notice.
Transportation and Logistics Issues
Transportation and logistics concerns remain as well. Despite improvements, there are lingering effects of pandemic impacts. Many small and mid-sized carriers went out of business, severely impacting domestic shipping capacity.
Logistics companies are also facing the same economic headwinds. Inflation, rising fuel prices, and continuing labor shortages are keeping shipping costs high. While prices may have eased from pandemic highs, they remain higher than pre-pandemic pricing. Most industry experts do not expect relief even as demand eases due to other economic factors.
Rising Energy Costs
Rising energy costs have hit the manufacturing industry hard. Nearly two-thirds of industry executives said increased energy costs are one of the biggest risks to their company.
Globally, energy prices have soared. While there’s been some moderation lately, the World Bank Energy Price Index shows prices about twice the annual averages from 2020.
Limited Manufacturing Capacity
Several chipmakers also pulled back on production to avoid excess stock concerns in some industries. While production capacity was shifted in some cases to areas where shortfalls continued, such as automotive, this has placed limitations on overall capacity.
At the same time, there is a significant shortage in the auto industry; however, there is also slowing demand due to inflationary cycles. Honda, Toyota, and VW have all announced production cuts, leaving manufacturers with questions about the best strategy to move forward. Changing demand and rising costs have shut down some production lines, which may need additional time to return to more normal capacity.
Overcoming Supply Chain Disruptions for Electronic Components
While the pandemic heightened awareness of the impact of supply chain disruption, years later, we are still seeing the impact. Inflationary concerns, rising energy prices, raw material shortages, global tension, and fluctuating demand and capacity will all play a role in the ability of manufacturers to get the electronic components they need.
Companies need to plan for disruption, create alternative sourcing for procurement, diversify supply chains, and shift from a just-in-time mentality to a just-in-case.
Sensible Micro can help.
Sensible Micro is a certified electronic component distributor and supply chain solutions partner. We help electronics manufacturers around the world procure quality electronic components. Whether you are looking to diversify your supply chain, find a vetted supplier, or have excess inventory to offload, we provide the services you need to operate efficiently and cost-effectively.
We offer in-stock inventory, alternative sourcing solutions, and inspection and test labs for component validation. Contact Sensible Micro today, and let’s discuss your needs.
