Front End | Electronic Components Supply Network
2021 – A difficult year for all in the electronic components supply network
Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn), has often used euphemisms such as “challenging” or “interesting” when describing the electronic components supply industry, as editors of publications such as Components in Electronics (CIE) rightly denied him the use of stronger, more colourful language. “Instead, let’s simply settle for ‘difficult’ when describing 2021, inadequate as that word is,” says Fletcher. “This year has been especially ‘difficult’, particularly for those working in manufacturing, procurement, sales, marketing, logistics and management operations, wherever they engage in the supply network.” In this article Fletcher suggests that we are now beginning to emerge from the darkest period and step blinking into a new dawn, but he cautions that some difficulties look set to remain
It’s forecasting time again The leadership group of ecsn, probably in common with many organisations that employ readers of CIE, conclude the current year by compiling a forecast for the year to come, but in the current economic climate finding a consensus opinion for 2022 from ecsn’s manufacturer authorised distributor (afdec) members is proving to be a struggle. They’re having to contend with a huge number of known and unknown variables. ‘Known variables’ are constantly changing, skewing their impact on different organisations, and that’s before the ‘unknown or unlikely variables’ are factored into the equation. Fortunately, ecsn has access to a wealth of monthly statistical data from its members, and so will be able to establish a consolidated view, which will be published
in the association’s UK/Ireland Electronic Components Market Forecast – 2022, at the end of December. The graphic “afdec Member Book: Bill Ratios by Month” shows actual figures for the sixty-nine months that separate January ’17 and September ’21. The heavy black line shows the total components Book to Bill (B2B) ratio over this period. A B2B ratio slightly above unity is indicative of modest growth in prospect. Note however that between June ’18 and July ’20 the B2B ratio went negative, strongly indicating that customers were deliberately eroding their backlogs and allowing their in-house inventory levels to decline. My suggestion at the time that customers should consider increasing their in-house inventory by approximately 10 per cent was largely ignored, despite
the threat posed by a looming Brexit. In June ’20 ecsn advised the market that semiconductor manufacturer lead-times were unexpectedly increasing and again suggested that customers should take action to protect their order cover. Customers were busy fighting ‘fires’ on many fronts and apathy apparently ruled until November ’20, by which time many manufacturers of semiconductor and passive components were quoting steep lead-time changes. As the plot within the blue circle on the graphic shows, customers have significantly increased their order cover throughout 2021 in line with (and beyond) the extending components manufacturers’ lead-times but were now behind the curve.
So, what does this B2B activity tell us?
afdec Member Book: Bill Ratios by Month 10 December/January 2022 Components in Electronics
The exponential increases in manufacturer lead-times for electronic components and industry concerns about availability has resulted in a massive global spike in “bookings”, much of which was only accepted on non-cancellable / non- returnable terms. In the UK customers have effectively placed almost two normal years’ worth of “bookings” and now have order cover for 2022 into 2023 and even some order cover extending into 2024. Whilst having a strong “backlog” is great it’s the “billings” metric that is the most important. After all, it’s ‘billings’ that finances the organisation to “make paydays happen”. “Billings” in the UK / Ireland have significantly exceeded our original 2021 forecast of 6.5 per cent growth and we now estimated the final outcome to be close to 15 per cent growth.
The graphic “Forecast Billings – Actual & F/C 2021” shows the actual billings (sales revenue) performance for the UK and Ireland electronic components market to the end of Q3’21. The green line shows the upper range, the purple line the midpoint and the blue line the lower range of ecsn’s forecast for 2021. It’s apparent that the billings performance to Q3’21 significantly exceeded members’ original forecast as customers sought to dramatically increase their in-house inventory in a pattern that’s being repeated across all global electronic components markets.
Supply and demand imbalance One of the most significant side effects of the COVID-19 pandemic on the global electronic components industry in 2021 was that it radically altered the pattern of demand. Historically US and European electronic components markets experience their strongest growth in demand in Qs 1 & 2 before falling away in Qs 3 & 4. In contrast Asian electronic components markets are comparatively moribund in Qs 1 & 2 before demand begins to ramp-up in Q3, heralding really strong growth into Q4. This phenomenon has held the global electronic components markets more or less in balance for decades and has served our industry well. But in 2021 all regions of the world simultaneously experienced unprecedented customer demand. As we enter the new year demand continues to outstrip supply throughout the global electronic components supply network, an imbalance that has been exacerbated by a much stronger than anticipated economic recovery and poor customer demand forecasting. These factors
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