Are there shortages for electronic components in 2024?

15 Apr.,2024

 

For sourcers of electronic components, life pre-2020 and post-pandemic must feel like exactly that – two separate lifetimes. 

Heading into 2024, the industry is at a crossroads.

A who’s who of supply chain challenges in the electronics industry (war! COVID!) have lingered longer than anyone would like. But there are signs of recovery, and new opportunities, too.

Here are the top trends experts are forecasting for this next year, plus insights for businesses navigating these turbulent times:

7 Predictions: Supply Chain Gains & Challenges in the Electronics Industry 

Based on market and supplier analysis, expect these to be the top-seven trends in component sourcing in 2024:

  1. Higher threshold to stay in the supply stream

  2. Yes, there’s still a shortage

  3. Reshoring’s viability

  4. Cybersecurity risks

  5. AI, automation, & more

  6. Raw materials

  7. Labor challenges



1. Higher Threshold to Stay in the Supply Stream

For the past 5 years – even during COVID – suppliers were in acquisition mode, buying up distressed companies to make their component lineup wider and deeper. While they weren’t the resident experts on their new products, they knew enough about the electronic component industry and its trends to sell them.

In recent months, this has shifted – instead, more suppliers are consolidating due to cost structures. 

Some of it’s related to reshoring (which we’ll touch on below), but a lot of it has to do with uber-specific operations and volumes. Now, manufacturers – and even customers – are buying companies in their supply chain that are thriving and have the bandwidth to help them produce 4x more.

The problem for OEMs and other component customers is that this can lead to redundancies.

Project managers exist at all of these manufacturers. The ones who are new to the company, along with their finance teams, are the ones making customer-unfriendly calls: 

  • Accelerating end-of-life for parts

  • Killing entire lines that aren’t huge money-makers

  • Cutting services and staff 

These practices affect how distributors communicate with suppliers, and they affect the supply chain as a whole. We’ve seen a supplier shut a customer down because it couldn’t bring in $100 million a month. (Fortunately, the customer realized it wasn’t the distributor’s fault.)

A strong distributor relationship can help you avoid supplier drama in 2024. Nobody wants to hear, “Do a last-time buy, or you’re outta luck,” so lean on your distributor to introduce viable plan-B (and -C) component supplies.

One positive of this supplier trend? Manufacturer reps have more jurisdiction, and there’s less red tape. Starting with that positive, you, your distributor, and its manufacturer network should be able to come up with stable supply solutions.

2. Yes, There’s Still a Shortage

Today, more products are using more parts. Forecasts call for the global electronic component market to balloon from $186 billion in 2022 to $329 billion in 2031.

With more products including more electronic or “smart” elements, there’s more sourcing competition for industrial and infrastructure B2Bs, who still need their slice of the supply pie. The early 2020s’ pandemic and political conflicts (see: Israel, a major semiconductor maker) have only piled on the difficulty. 

The universal truth is: There will still be electronic component part shortages in 2024, even though demand dipped and production grew over the past year.

Semiconductor Lead Times

Q1 2020

8-12 weeks 

Q1 2023

26-52 weeks

Q4 2023

22-50 weeks

2024
(Projection)

12-40 weeks

No matter what components you need, you must learn to align with a supply stream that doesn’t always seem to want to align with you. Trend #1 above is showing this. We’re seen $27 million branches of a manufacturer shut down seemingly overnight. Some suppliers are evolving into monstrosities that simply aren’t the same company you once knew and loved, growing so big they need to consolidate.

This is where multisourcing the same component and use of a distribution partner are smart defensive strategies. The right people, processes, and database software can optimize your order flow – and even your design, if necessary – for a more stable operation.

3. Reshoring Is Viable Again

Empty promises no more, the wheels are finally turning on bringing more electronics manufacturing projects back to the United States.

Offshoring began in the 1960s, became a formal business strategy in the 1980s, and blew up in the 2000s (as internet use exploded worldwide). The reason is no secret: Labor was significantly cheaper overseas.

That’s still partially true, but since 2020 and COVID, the electronics manufacturing supply chain has crept back toward home little by little. Why? Because the cost of doing business in the electronics industry amounts to more than just labor.

Reshoring (or nearshoring) component sourcing addresses these challenges:

  • Operational costs: Tariffs, customs, & labor prices have grown costlier in traditionally cheap countries
  • Disruption resilience: Global political tensions, natural disasters, & health crises have made it riskier to source far from home
  • Quality control: Onshore suppliers give more consistent results because they avoid language & cultural barriers
  • Lead time & response: Fewer or no gaps in time zones and languages to hinder communication & delivery
  • IP protection: U.S. suppliers are generally more vigilant in protecting customers from idea theft & cybersecurity lapses

That’s not to say new domestic production lines are springing up by the minute.

It takes time to source machinery and materials, build facilities, and find people willing to work in them. Even with government agencies offering incentives for new construction, it takes at least 2 years to get a plant up and running. 

Still, there are real signs of reshoring progress. Joining the trend may make your electronic supply chain management easier to wrangle in 2024.

4. Cybersecurity Risks

Onshore or offshore, protecting your digital assets – and your customers’ – is more important than ever.

The average cost of a manufacturer cybersecurity breach was $4.47 million in 2022. You’d think electronics manufacturers would have a better lid on this tech threat, but that’s not always true. Many don’t keep up with the latest cybersecurity priorities, leaving them open to emerging exploitation tactics.

We’ve watched multiple customers shut down their platform completely after an attack because they can’t request materials or pay their distributor bill. This devastation can happen to suppliers, too.

Here are some of the ways electronics OEMs are protecting themselves heading into the cloudy (and cloud-based) future:

  1. Verifying that the latest

    plant security procedures

    are in place for them and their partners. These include secure portals and networks with data backup, as well as strict storage and clearance for digital and physical documents.

  2. Investing in cybersecurity insurance. Spending $15,000 on a hypothetical might feel frivolous, but if a hacker strikes, that $1 million in coverage is a bargain.

  3. Auditing themselves. Security experts recommend that you hire a third party to try to “ethically hack” you at least annually. Penetration testers can find vulnerabilities in your system before actual bad guys do.

  4. Making cybersecurity a budget line item. Cyberattacks are ever-evolving. Shoring up security should be in your plans not just next year, but also every year after.

Cyberthreats are scary to even think about. Nonetheless, more OEMs are opening their eyes to the importance of safeguarding reputation and customer trust by investing in strong security.

5. AI, Automation, & the Rise of Machines

Manufacturers and sellers freaked out when products started going wireless in the 1980s. It ended up being an unfounded concern – plenty of companies sell more wire today than they did all those decades ago.

So, where does the truth lie with concerns about digital and physical robots becoming the be-all, end-all?

Probably somewhere in the middle.

Artificial intelligence – AI – is moving into almost all types of business at an exponential rate. Specific to procurement, AI could very well reshape the process with sophisticated data analysis and predictive capabilities. 

However, for those who don’t have a million dollars laying around to make this happen in-house, AI isn’t yet a universal solution. Smaller companies or those with tighter budgets still need that personal touch and expertise. Overreliance on a process devoid of human thought can lead to missed creative solutions. 

Similarly, the online catalogs and self-service platforms popping up recently probably can’t address nuanced business needs. They might cater well to high-volume transactions, but can they save you warehouse space or predict last-time buys?

Don’t get the wrong idea – progress is good. Automation advancements could make it more likely that a manufacturer keeps a series of parts in production. Even controversial blockchain networks (like Bitcoin) could have a continued home in the supply chain as a single source of truth for component tracking.

While AI and automation could someday dominate electronics supply chain news, don’t throw your team or your distributor in the trash yet. There’s still plenty of space for personal interaction and custom solutions.

6. Raw Material Pricing & Availability

As the industry recovers from COVID and other, less literal illnesses, electronic component lead time trends are hinting at 2019 levels – almost.

This is the most obvious and welcome sign of a healing supply chain. However, a full return to pre-2019 efficiency still faces a few roadblocks.

The industry is heavily reliant on materials that predominantly come from overseas. Copper and FEP (fluorinated ethylene propylene), in particular, are notable hot-button materials for cables and their insulation. These materials could very well stay in high demand throughout 2024, creating price and availability uncertainty.

An ongoing shift toward new technologies could also impact material availability amid volatile demand and political strife. New products – and new machinery to make them – sometimes put a heavier burden on the maker’s raw material supply. Combine that with the lingering war in Ukraine – which produces at least 90% of the U.S.’s semiconductor-grade neon – and you’ve got problems.

Electronics makers will look to stay agile in 2024, seeking new suppliers and exploring alternative materials where possible.

7. Labor Challenges

The electronics manufacturing industry has some serious labor challenges (Who doesn’t?), particularly in rehiring skilled workers who transitioned to other sectors. Small businesses grapple with offering competitive benefits, and there's an ongoing “brain drain” as skilled boomers age out of the workforce.

Salary and company culture aside, part of the challenge of employee retainment is instability in the demand for labor based on market surges and slumps. This ever-changing level of need means companies have employees sitting on the sidelines during low tide … or scrambling to shore up staff when demand surges.

Partnering with a dedicated, 3P distributor is a logical solution for taking labor woes out of the sourcing equation. It alleviates the need to constantly scale your in-house staffing up or down, and it allows you to focus on core competencies and strategic growth.

Gearing Up for 2024’s Component Supply Chain Issues

Forces of nature, human nature (war), and technology have already put their imprints on 2024. Suppliers know this and are taking advantage of it. Are you ready to adapt accordingly?

Support your electronic components supply chain by:

  • Investing in safe, value-adding technology

  • Keeping human relationships first – at both the supplier and distributor levels

  • Taking a proactive outlook on material, component, & labor

For more resources on component sourcing, visit our blog library:

 

With supply chain news flying everywhere since early 2020, you’ve probably found it hard to translate the specific impact to your business.

Unfortunately, we predict lingering electronic component shortages in 2024, even though demand dipped at times in 2023.

Take the infamous semiconductor crisis. Industry lead time trends for these complex electronic components exploded from 8-12 weeks in early 2020 to an entire year in late 2022. (It's not all bad news -- delays got shorter late in 2023 and might continue dropping in 2024.)

What can your business do to address its specific product lines and shortages? Start by admitting the map you drew in January 2020 won’t help you find the treasure today -- there aren't so many fish in the seas these days.

There are at least five shortage influences you should be tracking. We'll also share five action plans for managing part shortages so your project avoids delays and swelling costs.

Why 2023’s Electromechanical Component Shortages Are 2024’s Problem

First, a quick recap of the electronic component supply chain issues specific to shortages.

Availability at both the material and product levels has continued to plague buyers. Why are electronic components in short supply still?

COVID’s Ripple

Don’t discount the effect that worldwide factory and mine shutdowns in 2020 and 2021 still have today. While production has nearly reached pre-pandemic levels, the industry is still feeling the aftershocks of raw materials sitting unmined and factories diverting schedules to produce COVID supplies. Just look at the semiconductor shortage.

Component Hogs

High demand in commodity electronic component markets – like auto, consumer, and IoT – have sucked up supply, leaving others to fight for scraps. During COVID's worst stretches, housebound consumers bought more personal electronics to pass time. Outside the home, vehicles have integrated more electronic technology, and “smart” appliance and tool manufacturing have taken off.

This competitive scene tapered off slightly in 2023. Data suggests the potential for a continued downturn in demand for electronic equipment and chips in 2024. 

Political Conflicts

Russia is a major supplier of metals and minerals common in electronic parts, and war sanctions wrecked the flow of that supply. The impact is on both sides – Ukraine’s top two semiconductor-grade neon producers, responsible for 90% of U.S. supply, closed their doors when attacks began in early 2022.

Israel, a major semiconductor maker, is another political trouble spot to watch.

Who's Going to Make Them?

In a sad bit of irony, lead times for chip-making equipment is at 18-30 weeks. (At least it’s improving from the 18 months buyers experienced in 2022.) What's worse, there's a lack of skilled electronics laborers to fill these factories, forcing some of them to delay launch.

As for the parts themselves, they're ... tricky. The complexity of their manufacturing process, which can take up to 6 months, is partly to blame for the crisis.

Again, the issue is one of not just product shortages, but also labor and material shortages. No copper means selecting industrial cable gets harder. No resin means no plastic for vital components of an assembly. So, what’s a sourcing employee to do?

How to Plan Around Electronic Component Shortages in 2024

Your company needs supply chain expertise more than ever, so it’s time to take matters into your own hands. Steps you can take to navigate the choppy seas of electromechanical parts procurement include:

  1. Follow basic inventory management best practices
  2. Use component database software
  3. Work with an awesome distributor
  4. Reshore
  5. Adapt your design

1. Follow 2024 Inventory Management Best Practices

Electronic component inventory management has changed, and your life will be easier if you change along with it. Despite the constraints of this shortage, there are more ways than ever to be proactive and flexible:

  • Consider component availability in the design phase: Early in your project’s timeline, look at what’s available now and what you expect to be available closer to launch time.
     
  • Use multiple sources: Once a luxury, a second (and third?) source is a must-have today. Options are limited, and your ability to quickly work with an alternative supplier can win the race against deadlines. There are distributors and software that can help you tap these veins of valuable components.

  • Make large, blanket orders: During the development phase, buy enough components (with forecasted release dates) to clear initial production run estimates. This way, you can launch immediately once testing validates your design.

More than ever, inventory management is about thinking well ahead. Even when you’re not making a blanket buy, you should still order far in advance.

If you’re ordering a vital part that could shut down production if unavailable, stock up even more. This is especially true for sellers of mission-critical technology and other industries in which delays are unacceptable:

  • Automotive
  • Defense
  • Aerospace
  • Energy
  • Datacom

2. Use Component Database Software

This is the source for the electronic supply chain news that actually matters -- last-time buys and shrinking stockpiles.

What better way to juggle that data than to let technology do it for you?

Third-party component databases (i.e. SiliconExpert) offer a looking glass into millions of components from thousands of suppliers. Its uses include:

  • Obsolescence forecasting – Advance notice on shortages & life cycle changes
  • Inventory data – Real-time looks at availability, matched to your bill of materials
  • Compliance info – Notices on restricted & conflict materials

Use of a verified and constantly updated database also minimizes order-specific issues, such as counterfeit batches. 

Investing in electronic component software gives you a valuable map that steers you toward faster quotes and designs you nail the first try.

3. Work With an Awesome Distributor(s)

While single-sourcing a critical component is increasingly risky, leaning heavily on a great distributor for your broader supply needs is a crucial move.

When you’re desperate for electromechanical components, you’re at greater risk of low-quality or fake parts entering your inventory. Working with trusted electronics suppliers that vet sources and trace component history can keep bad parts away from your design.

Consider all that a contract electronics supplier can accomplish (while you focus on a successful launch):

  • Inventory management – Finds additional sources for key parts
  • Forecasting – Mans the database software and alerts you of life cycle changes
  • Warehousing – Stockpiles materials to avoid build delays and higher costs
  • Franchise pricing – Gets discounts you could pass on to customers
  • Turnkey – May speed up turnaround by offering other services like component kitting

During electronic component supply shortages, your sourcing partners decide whether to prioritize you for the above. That makes electronics distributor relationship management a huge factor in your success.

No matter the relationship, it’s always best to engage early and often. Don’t swim to a supplier’s ship during a crisis and expect a lifeboat on-demand.

4. Reshore Your Electronics Manufacturing Supply Chain

The longer your electronics supply chain is, the more prone it is to snags. If yours stretches beyond U.S. borders, consider reshoring your component supply chain.

Keeping your component stream in America can improve:

  • Lead times – Avoid orders being tied up in customs, sea storms, & tariffs

  • Quality – No counterfeit parts; no damage during long-distance shipping

  • Communication – Fewer language and time zone barriers

Earthquakes in the Middle East? Pirate attacks off the China shore? Both affect your production less when your partners work in the Northeast U.S.

5. Adapt Your Design

Some of the best improvements you can make to your electronic component sourcing situation are at the engineer level.

Adapting your design for component availability is possible in more ways than you might realize:

  • Redesign – Remove a non-essential component causing delays

  • Replace – Use a more common material or component for your missing or obscure part

  • Reprioritize – Is it easier today to improve an existing design vs. releasing a new one?

If it hasn’t already, your design team should train its brains to pivot efficiently. What’s the closest component available that still meets your specs? Can the engineers make this alteration work?

Anchoring inventory management to your design process takes effort from several teams. Procurement, supply chain management, design, and production folks should all have visibility into the state of the project – and its components. Involve your design team in supplier discussions, investment plans, and technology road maps. Your product design will evolve for the better.

 

Where Will You Steer Your Product Line in 2024?

Instead of asking why there is a shortage of electronic components, start how you'll be ready for the next one. You’re manning the ship – blaming outside forces will only get you so far. Your company will struggle to meet production goals if you don’t take supply and demand just as seriously as you did in April 2020.

Pin-to-pin replacements, drop-in replacements, and other design pivots may cause a minor headache initially, but they sure beat the alternatives: manufacturing downtime and panic. And you may be able to avoid redesigns entirely if you’re proactive.

A lot of your success in sourcing electronic components will revolve around developing a healthy supply network. Early communication is key – don’t wait until you’re lost at sea!

To learn what to expect from an electronic component distributor's supply network, see our manufacturer list:

 

Are there shortages for electronic components in 2024?

Electronic Component Shortage 2024: Outlook & Survival Plan