Allocation: What is It?
Allocation is a special situation of scarcity in which demand for electronic components exceeds manufacturing capacity. Lead times for allocated parts are unclear and subject to delay.
For allocated parts, suppliers do not receive enough components from manufacturers to fulfill their customers’ orders. Suppliers are therefore forced to allocate partial quantities to their customers.
Allocation: What is Happening?
Manufacturers (and suppliers) may not accept new orders for critically allocated parts. Manufacturers (and suppliers) may only be able to partially fulfill orders. Delivery dates are delayed, often without information about the next possible delivery date. Prices are extremely unstable: multiple price increases have been issued from dozens of manufacturers in 2018, even for existing orders placed in 2017. 100nF capacitors are essentially unavailable in large quantities (or only at 10–20x above market prices).
Why is Allocation Happening?
There are several factors that have led to component allocation: Rise of smart technology. In 2010, 300 million smart phones were produced worldwide. In 2017, that number rose to 1.5 billion. New smart phone models have hundreds of MLCCs and resistors. Component manufacturers did not scale quickly enough and are not able to keep up with current demand. There is a strong worldwide economy and increased demand for electronics, particularly in the automotive and consumer sectors. Large OEMs rent production space directly at manufacturers, leading to less production capacity for the general market.
Lead Times for Electronic Components: Current Situation
Allocation means that the lead time is unconfirmed and unclear. The supplier will deliver when and if they receive goods from the manufacturer.
If the part is not on allocation, lead times of 38-52 standard weeks are now standard for new orders of MLCCs and many resistors (from manufacturers such as Murata, Samsung, Yageo, TDK, AVX, Vishay). These lead times are expected to increase in the coming months.
Typical lead times from leading manufacturers of ICs, transistors, and diodes are 30-42 weeks. MELFs continue to have serious availability issues – some Vishay MELFs, for instance, have lead times of 80 weeks.
Pricing of Electronic Components: Current Situation
On average, “standard” resistors and capacitors are now 3-4x more expensive this year than in 2017.
Murata, Yageo, and Samsung control 60% of the market for MLCCs, and each has issued multiple price increases this year. Orders we placed in 2017 with confirmed prices and delivery dates were also subject to these mandatory price increases. If the customer does not accept the price increase, the supplier has to cancel the order.
Price increases may have started with MLCCs and resistors, but have since affected the entire industry (except PCBs). In the areas of active/discrete electronic components. We have seen here manufacturers issuing multiple price increases in the double digits.
According to our suppliers, further price increases for semiconductors and ICs are expected in Q3-Q4 of 2018.
Other Considerations Beyond Allocation: Miniaturization
Due to the meteoric rise of smart technology, there has been a massive shift towards the use of smaller component package sizes (miniaturization). In fact, smart phones are the key driver of demand for MLCCs, comprising half of worldwide consumption. East Asian electronics manufacturing is already oriented on smaller package sizes.
For manufacturers faced with limited production capacity, smaller package sizes are an opportunity to produce “more” components with the same production resources. Example: for every one 1206 capacitor produced, 80 pieces of 0402 capacitor can be produced.
Manufacturers including Murata are thus consolidating their product portfolios based on worldwide trends. Some larger capacitors and resistor package sizes have been or will be cancelled. In the technical data of a component, you might see a note "not recommended for new designs" - this means that the component will be phased out in the future.
This trend towards miniaturization will only continue, as consumers demand ever-smaller and more portable technology.
It is difficult to make a blanket statement, but the advice from our suppliers is to design in as small a package as possible for capacitors and resistors (0402 and smaller).
Allocation: Taking Action
At ESO Electronic/Newmatik, we preemptively purchased large stocks of common capacitors and resistors that have historically run in large quantities.
We meet in person with our main electronic component suppliers every 3-6 months to strengthen our relationships and preemptively address any supply-chain issues.
Over the past five years, we have also expanded our supplier base considerably, creating a strong international network of reliable, high-quality suppliers to source hard-to-find components.
Our business is typically high-mix, low-volume, so the availability of components for prototypes or small projects is not an immediate threat. In this market, however, availability comes at a price, and prices for electronic components at catalogue distributors like Farnell, Digi-Key and Mouser are also on the rise.
This situation is expected to cool down in 2020. We will continue taking preemptive steps to ensure component availability during this challenging time.
Allocation: What You Can Do
For large projects (>500 pieces per year), availability of components may be a problem and we suggest the following:
- Check your anticipated quantities for 2019 and 2020.
- Inquire these quantities. Quotes will need to be updated because materials pricing from 2016/2017 are no longer achievable.
- Order as soon as possible for 2019/2020. Lead times of up to a year are now unfortunately a reality for some projects. According to the logic of allocation, those who have been waiting in line the longest are served first. The team at ESO Electronic/Newmatik is always available to answer any questions or concerns you may have, and to work out a sourcing strategy to meet your needs.