The Impact of Component Shortages and What to Do About Them
I remember this conversation in the tincubator in January 2020 like it was yesterday. "Do you think this stuff going on in China will impact you guys?" That stuff, of course, was COVID-19 just before the tipping point of it becoming a global pandemic that we're still dealing with now, 18 months later.
Reflecting back on the conversation in January 2020. At the time, I had thought we'd get our first batch of hardware for this project, and that the crisis would be over and back to normal. It was easier for us to believe COVID-19 would stay localized to Eastern Asia and would be solved with a longer shutdown after Chinese New Year.
Obviously, that's not how it went. We did launch BOWdometer in March 2020, but all our deliverables for projects past that point have been massively impacted by COVID-19. As of the writing of this post, the COVID-19 Coronavirus pandemic has caused at least 4.3M deaths globally over an 18-month period. We all know the impact on the world's population, economy and society.
For people working in the tech/electronics space, the impact has stretched far beyond anyone's initial expectations: it's caused a global component shortage and huge supply chain issues.
So let's talk about that and how it's impacted our and our clients' businesses.
Obviously, this is the primary concern for us, for our clients, our partners and our suppliers. Writing proposals and helping clients with business plan schedules and costing is so much more challenging when there is so much uncertainty.
First of all, a lot of our clients aren't in the tech business. They're engrained in their industry and don't have a finger on the pulse of small PCB manufacturing. As their liaison into the tech world, we constantly are helping educate our clients to give them a realistic view of the tech space and how it factors into their planning and decisions.
We're constantly working with clients to ensure they understand that commitments can't be made due to the uncertainty of the supply chain. Trust me, telling the Management Team of successful SME's that there's very little we can do to mitigate risks of long lead times is not always fun!
It's different for the big corporations who can use their cash to make strategic investments in components to mitigate risks. For the smaller businesses and those stepping into technology, there's no 'clout' you can lean on as a small business.
Click here to read an article digging into the "small business squeeze" that Joe contributed to.
Where we're at right now
It's currently August 2021 and the lead times keep increasing. Right now, we're hearing 9 months+ for some of our often-used critical components. We have relationships with suppliers that can help us expedite, and we hold onto some inventory where possible to reduce risk on new product development.
For new businesses or businesses taking their first steps into new tech solutions, the lead times are often a deterrent right now and it's causing hesitancy to move into the tech space at all. This can slow innovation and also slow economic recovery as we try to move towards a post-COVID world.
What can we do about it?
We're still months or years away from recovering from this shortage, especially in IoT where the demand for products is continuously increasing.
Our best advice at the moment is to work with groups like ours that have established channels and relationships. Keep your suppliers and manufacturers looped in on your plans and objectives and make sure you're communicating with them regularly about the risks and ways to mitigate it.
Be transparent with your teams and suppliers, to be clear what the timeline estimates, risks and mitigation strategies are. When talking to component vendors, be very clear in the difference between confirmed projects and proposed projects.
So many companies are doing 'panic orders' that they don't really need right now, and your suppliers are there to help the confirmed projects get the priority they need, if possible.
There is always a solution to every problem. In this case, the solution may not be something you have the means to do at the moment. If you're up against a wall and looking for help, reach out to us and we'll help if we can.
We typically iterate our new product volumes something like this:
10-20 first batch to test bring-up and finalize PCB design
100-250 second batch to smooth out manufacturing processes
Then scale to the larger batches of 1000+
Before the shortages, we were able to hot buy for the initial 10-20 and then hand the BOM/eBOM to our manufacturers to source and assemble the 100-250+ volumes for a predictable cost and timeline.
These days, we're forced to hot buy for much larger volumes than usual. "Hot buying" components means you source the volume you need from component resellers, paying a premium since they're in smaller quantities than typically provided and can be marked up in price. Hot buys increase variable costs for product companies.
Where we're at right now
To get the volumes we need for some components, we've had to buy from multiple suppliers, which just increases the time spent on administration and organization. We've also had to pay more to expedite shipping. Sometimes we have to resort to paying extra to ship components multiple times to our assembly partners, which increases the fixed cost.
What can we do about it?
As soon as you start designing your product, you need to start looking at component availability. Be ready with backup components or parts that would also work, especially those that are footprint-compatible with your first choice.
When shopping for components online, especially for hot buys, you will need to be able to quickly and efficiently review alternatives to swap out. Be prepared with the key specs and know how to navigate a datasheet to pull out the details you need. We know from experience, you don't have hours or days to think about a change. Keep an organized list of what you've actually purchased and make sure your PCB designers are updating the schematic, BOM and layout once you've sourced your components.
The best thing to do is to design based on availability. Often the things that are hot commodities, are common in different designs, e.g. power sections, communications sections. These are available from many different manufacturers. Do not succumb to "design/brand OCD", where designers are inclined to just choose components because they are part of a set from the same manufacturer. Many companies offer pieces that will work.
It's always worthwhile talking to your network, your suppliers, your component reps and anyone else to make sure they know what you're looking for in case they have a creative way to solve the problem. But be prepared to act fast and work fast. Make sure you have cash in your hands ready to spend and do the administrative work to set up things like multi-currency or International bank wire transfers as quickly as possible to avoid losing out on parts when you do find them!
Dealing with Component Speculators
Do we call them Speculators? Or Trolls? Either way, these are groups capitalizing on an opportunity by buying up stock of in-demand components and then inflating the prices. Obviously not a very scrupulous tactic, but it's effective when there's such high demand and very short supply. Capitalism at work!
Where we're at right now
Here's a story for you that pretty much sums it up. We were sourcing a battery charging buck (specifically the BQ25792 from TI) and couldn't find it. Normally it would be around $3 per in the volume we were looking for (300-400 qty).
The price we were quoted from someone with them in-stock? $59.99 each. Quite literally, 20x the price it should be. We were able to find an alternative component in stock in the volumes we need, but if we couldn't do that we would probably have to delay the project. No proper business model can absorb a 20x cost on BOM!
For one specific project, we had to redesign our board completely to change out a lot of components that were being price gouged by speculators. It was a harsh reality but necessary to deliver in the timelines we need for our client.
What we can do about it?
Unfortunately, the trolling won't stop until the industry is able to catch up to the demand. Building new factories, streamlining manufacturing processes and - most importantly - conquering COVID-19 are all things that industry is working on. Suppliers don't like not being able to capitalize on spikes in demand due to supply issues. We're all feeling the pain of this and working to resolve it.
Keep an eye on industry news to see what's coming up. We'll see investment in new factories, IPOs or acquisitions of existing factories and all kinds of partnerships as people struggle to catch up to increased demand.
A big part of our business is working with our clients to help consult on the technical impact of decisions, helping keep them informed on the tech side as they reach strategic business decisions.
If you're struggling and not sure how to move forward, reach out to us today and we can have a conversation. We're a team of people who have been "fighting fires" like this for 20 years - we can help you find the right path, regardless of what it is. We don't give false promises and we pride ourselves in our transparency with our clients and partners.
tincubate supports a variety of different initiatives all being incubated together. We incubate our own ideas into solutions people can buy, and we help incubate other people's ideas into solutions they can own. We also own and operate a collective space where entrepreneurs and businesses can grow their ideas into reality, called the tincubator.
If you have a project you want to explore, reach out today.