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How To Manage Product Development During a Parts Shortage

By now you’ve probably heard about the global semiconductor shortage of 2021 — and maybe even about what caused it. (Hint: Look around your own home for the answer.)

When the pandemic hit, many industries adjusted for impact by slashing inventory orders, including for critical semiconductor components. But as 2020 progressed, there was a shift to working from home, to virtual school, and to remote everything.

That shift led to an increased demand for laptops, cameras, headsets, gaming consoles, and other work- and entertainment-related devices. These complex electromechanical devices typically contain hundreds of unique off-the-shelf (OTS) electronic components, requiring the input of complex supply chains.

This boom in consumer electronics strained the semiconductor industry’s production infrastructure and led to the chip shortage we’re experiencing now. Companies are struggling to get the inventory they need to shore up depleted inventories and to fulfill critical sales opportunities.

Plan for a Continued Chip Shortage

A good amount of ink has been spilled about how the chip shortage of 2021 has stalled automotive production. You may have read how GM, Ford, and Fiat Chrysler have all been forced to halt production at some factories.

But it similarly presents a challenge for companies involved in the product development and manufacture of any device that uses semiconductor components. As one Marketwatch article notes, “No critical system or network you can think of — defense, power, transport, finance, communications, health care — can function without semiconductors.”

Apple has come out in recent days to lament the shortage of components available for its iPhone 12. Sony has said it will be unable to expand manufacturing to meet the demand for its PlayStation 5 video game consoles in 2021 due to the chip shortage.

“No critical system or network you can think of — defense, power, transport, finance, communications, health care — can function without semiconductors.”

And consumer demand isn’t waning. According to the Consumer Tech Association (CTA), 2020 was the biggest year on record with nearly $442 billion in retail sales revenue for the technology industry. And the CTA is projecting big demand for game consoles, headphones, and smart home products in 2021.

Unfortunately, these semiconductor supply challenges won’t improve quickly. The machinery required to produce the critical components is expensive and takes time to install. The impact of cost and time on expanding chip-making facilities will trickle down to prices paid and to lead times for semiconductors throughout 2021.

How To Maintain Productivity

Given this risk, we’re advising clients in need of these hardware parts to plan differently in 2021. With the ability to hoard stock, large companies enjoy an advantage in the competition for these parts, and indeed some have already begun stockpiling. Small companies need to approach product development projects with an expectation of shortages throughout the year.

We’re helping several clients navigate this challenge, and we’ve compiled some advice here for those facing, or anticipating, the semiconductor shortage. These workarounds are useful when facing any kind of hardware part shortage.

Small companies need to approach product development projects with an expectation of shortages throughout 2021.

If you’re taking a new product to market (New Product Development); or focused on maintaining a product that’s already to market (Part Selection and Alternate Vendor Lists; and Production Inventory Management), here are some tools:

New Product Development

  • Communicate: Inform all stakeholders of the production risk and get pre-approved for at-risk purchases of critical components.
  • Vet critical parts: Identify critical components early in the design process and order enough quantity to fill the needs of the prototypes throughout the program.
  • Partner with contract manufacturers: If supply chain is not a core function within your business, partner with a contract manufacturer early in the process. Contract manufacturers can help with storage of components and will have deeper, more established supply chain networks to utilize.
  • Limit builds on early prototypes: First designs of new printed circuit board assemblies (PCBAs) often require modifications after testing to complete the desired functionality. In early builds, limit the number of PCBAs as this will reduce the rework required and avoid losing valuable part inventory in the event of a significant modification.

Part Selection and Alternate Vendor Lists

  • Drop-in replacements: Identify parts that can be swapped for alternate vendors. Alternate vendor lists with two or more vendors will significantly reduce the risk of hitting part shortages that impact production builds.
  • Use parts with common Interfaces: When completing part selection activities, remain focused on parts that use common interfaces such as SPI or I2C. Strong examples of parts with wide potential for replacements are in the sensor industry where many suppliers sell parts with common footprints, protocols, and interfaces.

Production Inventory Management

  • Increase inventory to hold additional stock: If you are a seasonal business, consider holding enough stock to maintain product sales through the season. Can you manage a seasonal sales goal with a 16 to 25-week lead time?
  • Seek the spot market: In a pinch for parts? Seek the spot market and buy from reputable distributors such as Digikey and Mouser. Distributors like these may carry that valuable safety stock you need to meet short-term customer sales goals. However, it will come at a higher price of goods.
  • Not so obsolete?: No parts to be found? Reach out to the manufacturer to see if the current listed part obsoleted an older part that is considered a drop-in replacement. In this case, these older parts may have existing inventory at distributors that still meet the design requirements of your product.

In short, knowing what you’re up against (and avoiding the very human instinct to wish it away) is half the battle!

Expect the chip shortage to remain the status quo past Q3, and adjust your product development plans accordingly. Use creative thinking to find ways around the problem. If there’s any skill we’ve gotten good at this past year, it’s the ability to lean into constraints and adapt.

Read about Electrical Engineering at Bresslergroup.