Shortages and other Supply Chain Challenges: What’s a Buyer to do?

In my last article, I summarized the causes and effects of the ongoing MLCC shortage. This situation of course creates risk for buyers. And by “buyers” I mean the organization as well as the individual. In times of shortage, how do you ensure that you can continue to supply your production lines?

A few thoughts:

  1. Don’t limit your options. There are multiple manufacturers in many cases, so don’t list only one manufacturer on your bill of materials (BOM). When you pass certification testing on your product, it is usually tied to the BOM you submitted with the application. If you then need to use an alternative manufacturer, you may need to recertify your product. This means that supply chain management, I was going to say “should” but be frank and suggest “must”, be involved the design and development process to ensure a sustainable BOM is available when the product goes to production. To coin the phrase of one of my mentors, “never expose yourself to risk by limiting yourself to one source”.
  2. Qualify alternate manufacturers. There are tier 2 manufacturers with product available that is suitable for your application. You may need to qualify the vendor through auditing and verify the product through extensive testing, including lifecycle and reliability. The investment could expand your supply options. If you are desperate for the product, it is already too late to secure materials from unvetted manufacturers. So qualify them and include some samples with their product in your development testing so you can already have them on the BOM.
  3. Prepare safety stocks. Don’t be a forecasting-phobe. Your ERP certainly isn’t, or shouldn’t be. The carrying costs of these items are not high compared to other BOM items, but don’t assume they are available on demand. Project your requirements out six months in advance, but also note your items that are class 2. Capacitance values on class 2 capacitors diminish with time, and that depletion is fastest early in their life. Manufacturers publish this information, use it. Talk to your application and component engineers about what is the minimum capacitance value that will work in the application, cross-reference that to the deterioration charts to establish a shelf life. Most ERP’s track this, too. With shelf-life and projected volumes, you can more accurately establish and manage safety stocks. But do identify products that are approaching their shelf-life and convert those to cash while someone else can still use them before you cannot.
  4. Don’t hide your own inventory with mysterious numbering systems. The manufacturer already has assigned a part number, is there something wrong with it? Many manufacturers assign their own part numbers to materials, and sometimes even for each of their products. That means you could multiply your tracking woes exponentially if you insist on using internal part numbers. If you must do this, at least make sure your system can track the manufacturer part number and your own. If you assign a part number and your product is no longer produced, you may not be able to see that the exact part number you are looking for is already in your inventory but is hidden behind a part number that you assigned to it. Referring back to point #1, identify a sufficient number of direct crosses and at least assign them the same part number in your system in addition to the manufacturer’s part number. That way you can find what you’re looking for in your own warehouse.
  5. Venture outside your safety zone, but verify product without traceability, and don’t rely on labels. As we discussed in our Q4 2018 seminar series, labels are about the easiest thing to fake. Yes, many manufacturers do support lot code tracking, but they don’t track how many units were verified for each lot code. All a counterfeiter needs is a valid lot code for each partner and they can reproduce labels as fast as their printer can generate them. So do not consider lot codes or labels as your only source of traceability. Product that you or your supplier cannot provide evidence that it came from the manufacturer should be tested. Please refer to standard AS6081 for reference. There are suppliers out there who may have access, or carry, inventories that your regular sources cannot. Don’t stop a production line and delay product shipment when the materials you need may yet be available. Just verify the product prior to use.
  6. Monitor date codes on your stock and on sourced product. As I introduced in suggestion #3, make sure you are tracing your date codes on class 2 items particularly. As you should move that inventory before it becomes obsolete, bear in mind that others are likely doing the same. I see a lot more date code restrictions on semiconductors and integrated circuits than I do on passives, which are more at risk of deterioration even with proper storage. Make sure you aren’t buying product that is not too old to use.
  7. Stayed tuned to important manufacturer updates such as product change notifications (PCN) and obsolescence/end-of-life (EOL) announcements. Manufacturers discontinue product lines by the hundreds of thousands that are no longer profitable enough to continue. If you are still tied to it, though, you could be forcing your own shortages by not having a plan b in place. Consider memberships in organizations such as the Component Obsolescence Group (COG) that work with OEM, OCM, and EMS to manage this balancing act so you have time to plan rather than being forced to react.

I’ve run out of space, but hopefully not your interest, here. Hopefully a couple of ideas are useful for you to integrate solutions to your materials and supply chain management practices, particularly in times of crises, like prolonged shortages. Several of these ideas, though, require the identification of different types and classes of devices so you can more effectively manage them. You’ll need to break down some part numbers, so next we’ll show you how. If you have comments on my thoughts or questions, don't hesitate to contact us. Stay tuned!

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