Designers are Adapting to the Chip Shortage

Electronics component inventories are loosening up, but OEMs are still struggling to secure devices essential to their product designs. Moreover, engineering teams are being asked to consider component sourcing when developing the next generation of their products.

To date, the prevalence of design-for supply chain (DfSC) has largely been anecdotal. But a recent survey by electronics distributor Avnet Inc. found a majority – 74 percent – of global companies polled said access to electronics components has been a very significant challenge. Nearly half of respondents are qualifying devices at the beginning of the design process.

Manufacturers are utilizing their supply chain partners in their sourcing decisions. “The ongoing challenges have underscored the importance of strategic design and supply chain services – and engineers and product designers are taking notice,” said Peggy Carrieres, vice president of sales enablement and supplier development for Avnet.

The inability to source components has frustrated design and procurement teams. Respondents pointed to higher component prices and delayed production schedules, with more than 8 in 10 saying those issues have worsened. Further, most are preparing for prices to continue increasing (29 percent) and lead times to continue to lengthen (26 percent).

Chart: The chip shortage has changed how products are designed

Source: Avnet Insights

“We don’t see prices coming down,” said Carrieres. “The indicators that we get from suppliers is the COGS [cost of goods sold] isn’t decreasing.” Intel is one of several chip companies that have announced price increases and some fabs have raised the cost of their services.

But pricing has become secondary to the issue of simply securing components. Production lines have sit idle as manufacturers await devices that are key to their products – the so-called “golden screw.”

Nearly a quarter (23 percent) of survey respondents have begun testing and qualifying multiple parts that meet requirements early in the design process to design-in flexibility. Additionally, organizations are adjusting their supply chain strategies to build up buffer inventory (23 percent) and lengthen supply agreements (21 percent).

Buffer stock is typically anathema to electronics customers, but many have measured the impact of not having a critical device on hand. The most notable figure comes from the automotive industry which lost more than $200 billion because of the chip shortage. Most manufacturers limit their buffer inventories to critical and strategic components.

Flexibility is everything

Optimal design flexibility means considering component availability early in the process. While some survey respondents are opting to wait (23 percent of respondents in EMEA said they are willing to delay product introductions to overcome shortage concerns), the most popular tactics for engineers to work around the current environment are design-based. These include using pin-to-pin replacements (25 percent), redesigning boards (25 percent), and using drop-in replacements (25 percent).

“Customers have the best chance for manufacturability and sourceability if you plan as early as possible in the processes,” Carrieres explained. “We recommend looking at dual sourcing, using architectures that won’t require a redesign of a board, and a BOM risk analysis.”

In terms of the actual design process, 25 percent of respondents are designing in approved components with multiple manufacturers while 23 percent are testing and qualifying parts early in the design process.

“We drive design-for test, design-for manufacturing, design-for serviceability — all of those attributes,” said Mike Fitzgerald, vice president of operations at Pure Storage, a manufacturer of all-flash storage systems. “What we’re trying to do is get further up the work stream in terms of development and design. Your ability to influence [component selection] is certainly in new products. Once the baby is born, it’s a lot harder to influence it.”

Other design strategies include seeking alternative sources for parts (35 percent) and going beyond the currently approved manufacturing list for their organization (23 percent). Still, engineers remain aware of component risk: 13 percent are prepared for companies to increase due diligence in this respect.

The big picture

Supply chain visibility, transparency, and agility have been key considerations for organizations throughout the recent disruptions. Avnet found many businesses are building up their inventories, entering long-term supply agreements and improving relationships with their distributors (19 percent).

“Relationships between engineers and distributors are continuously evolving and cyclical, and right now, we are seeing an increased understanding of the value that distribution, and its associated services, can add in the midst of prolonged uncertainty,” said Carrieres. “Engineers and product designers who lean into distribution’s design and supply chain services will not only be prepared to succeed in the current environment, but also be well positioned to navigate any potential future disruptions the industry – and technology – may face.”

The Avnet customer survey was conducted among 1,605 global engineers in September. Both Arrow Electronics Inc. and Avnet, during recent earnings calls, noted customer engagement has expanded since the Covid-19 pandemic and the beginning of the chip shortage.

“Our supply chain capabilities are now helping us serve our customers in different and value-adding ways,” said Sean Kerins, CEO of Arrow. “For example, we’re now finding ourselves with a viable role in the automotive industry in a more direct capacity than we would have ever imagined in the past.”