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The electronics industry has experienced growth in recent months, but could this negatively impact component availability? Chairman of the Electronic Components Supply Network, Adam Fletcher, asks whether UK buyers are prepared.

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Procurement professionals will not need me to tell them that the UK and global electronic components industry has experienced welcome growth in the first part of this year. What might surprise them, however, is the news that the market has grown, and continues to grow, significantly faster than forecast and that this growth is having an unwelcome impact on the availability of electronic components.

Many device manufacturers are quoting lead-time availability for the majority of components as eight to 10 weeks. This is longer than we’ve been experiencing recently, but in truth, is still around the established industry norm. Some components, however, have already gone out to 12 to 16-week lead-times and a very small number of component manufacturers are already quoting lead-times beyond 20 weeks.

Global growth
Compared to the first quarter of 2016, the average growth rate across the European electronic components supply network in the first quarter of 2017 was 7.9 per cent. Looked at over the entire year, the European average growth was four per cent. The 17 per cent UK growth figure for Q1 ‘17 should be viewed with caution as it is skewed by the post Brexit decline in the value of Sterling against the US dollar and Euro. When this is factored out, the real underlying growth rate for the UK comes out nearer six per cent, which is, however, still double the forecasted growth.

The US electronic components market fared nearly as well as the UK in Q1. It reported growth in the range of five to six per cent, driven by an improvement in the overall US manufacturing sector. The Japanese electronic components market also experienced growth, albeit at the slightly more modest rate of three to four per cent, thanks to increasing activity and orders in its manufacturing sector. Conversely, Q1 growth in the world’s largest electronic components market, Asia-Pacific, was below expectations. Growth in the range of one to two per cent reflects a continued slow-down in demand in Asia Pacific for consumer goods, particularly for mobile phones and all variants of PCs.

Definitive statistical data for the global electronic components supply network for Q2 ‘17 is not yet available, but the word from industry leaders and commentators suggests that growth has been broadly similar to the first quarter and there is widespread confidence that this faster growth will extend into the entire second half of the year.

Cyclical demand
Demand in the global electronic components market remains geographically cyclical. Western economies tend to experience growth in the first half of the year, while Eastern economies grow in the third and fourth quarter. The conundrum here is what actually happens in the Far Eastern electronic components markets in Q2: low or flat growth in Asia-Pacific may have a short-term moderating effect on manufacturing capacity, product availability and lead-times times for global procurement, while strong or even modest growth is likely to have the opposite effect.

We shouldn’t expect a return to full market stability until manufacturers add capacity back into service, extend their contracting out of some manufacturing services or crucially, add new capacity in order to meet this growing demand.

Unfortunately, I suspect that many organisations have become a little blasé about electronic component availability and lead-times. Surprisingly, analysis of historical supply and demand cycles over the last thirty years or so show that it’s often the inexpensive and easily overlooked commodity components that become the most challenging to source when lead-times begin to extend.

Procurement professionals therefore need to act now to alleviate the issue of extending lead times. The first step is to ensure your information is up-to-date, then carefully consider how best to proceed, based on market intelligence and personal experience. Finally, actively engage with your entire supply network to honestly and effectively communicate the needs of your organisation. The truth is, everyone benefits if everyone plays their part in helping to maintain electronic components market flexibility and stability.

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