With reports of DRAM and other memory being in short supply globally, it’s important that OEMs and supply chain managers take steps to protect their product lines and continue to meet customer demand.
A global supply shortage creates these key challenges:
- Excessive lead times for component availability – some in excess of 20 weeks. For manufacturers, this means an inability to fill customer orders as quickly as may be necessary.
- Increases in the cost of components as demand exceeds supply. For manufacturers, this results in a loss of margin or – at worst – the need to raise prices of their products.
- Vendors pushing out the dates for confirmed orders as component manufacturers give 11th-hour warning of shortages. For equipment manufacturers, this can result in severely disappointing customers with little advance notice.
Strategies to Alleviate Business Impacts
Relationships with suppliers are invaluable in times of shortage. Our constant efforts to maintain strong relationships with suppliers pays off in supply crises, as suppliers who enjoy dealing with us will often “go the extra mile” to help us secure critical components. In a supply crisis, we may also examine our purchasing history and, based on that history and our knowledge of our customers, may purchase an extra supply or place scheduled future order for certain parts.
But, in a global supply shortage situation, there is only so much any supplier can do to obtain high-demand components. Forecasting is the ONLY safeguard against the negative business impacts of a materials shortage. By forecasting our need for components 6-12 months in advance, we are able to bond inventory with suppliers. Bonded inventory is a certain percentage of inventory that is set aside for us. We have immediate access to bonded inventory and can generally receive it within days.
Supply chain allocation is another possibility – based on our forecasts, suppliers will allocate affected parts to particular customers.
Forecasting requires close partnerships between OCM and its customers, and we recommend the following best practices.
Forecasting Best Practices
OEMs and ODMs who provide materials forecasts to us are proactively buffering their businesses and operations against global supply crises. Best practices for materials forecasts include:
Partner with your EMS provider.
Meet quarterly with your EMS provider to discuss potential new business and probabilities of new orders. Based on estimates and plans we can work with you to put bonds and letters of intent in place with suppliers, thereby alleviating many part obsolescence and/or supply shortage issues. This is also the best means of securing competitive pricing. Also involve your EMS provider in new-product design and planning. In doing so, you will incorporate design-for-manufacturing (DFM) into your development process. Through DFM, we are able to help to avoid single-sourced parts as well as other costly pitfalls, such as unnecessary labour, over-design, and problems with manufacturability.
Specify alternate parts.
When choosing components for your design, specify alternative parts wherever possible, and include these in your bill of materials (BOM). Single-sourcing parts leaves you with no options when a supply shortage affects that part, leading to extreme lead times, jacked-up prices – or both.