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factors effectively discourage new investment in manufacturing capacity. The existing “captive manufacturers” of TFCRs are primarily based in China and Japan where aggressive competition prevents them from exerting much in the way of control over their selling prices and manufacturers are only able to operate on wafer thin margins. Accordingly, TFCRs have become “Merchant Market Commodity Products” and are traded like any “commodities” with “spot” pricing effectively determined by market supply and demand. That said, the price of TFCRs must rise in-line with the increases in raw material costs as they are the largest single contributor to the cost of production by far. Mayhem would ensue if just one of the few TFCR manufacturers out there withdrew from the market as there would be insuffi cient manufacturing capacity remaining to meet current, let alone future, demand.
Impact on Procurement
As I have suggested in previous contribution to Components in Electronics, when supply and demand are imbalanced it’s not generally the Super “A” class expensive items like single sourced semiconductors that are likely
to cause customer line-stops. It’s the multitude of “C” class, very low price, high volume, commodity products that the market often take for granted that are going to be the problem. The selling price of both commodity and advanced electronic components is going to rise over the next few years to refl ect increased costs, investment in manufacturing capacity and the ROCE goals imposed by investors on manufacturers as they strive to meet the forecast demand. The highly competitive nature of the global electronic components markets and the need for manufacturers to fully utilise their capacity to maximise ROCE, will eventually balance pricing along with supply and demand within the market.
Some of the largest global buyers of commodity passive components are investing directly in much needed production capacity with their preferred supplier manufacturers in a bid to ensure their current and future production needs are met. Whilst this action may be worrying for other smaller customers who cannot make this scale of investment, it very likely to prove helpful for the supply network in general as it will reduce risk for the manufacturer by effectively guaranteeing part of their sales revenues. However, the
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indications are that that TFCR pricing will increase signifi cantly irrespective of swings in demand and will remain high or even increase further simply because of increases in raw material prices.
Improving Communication The process of constant challenge in the electronic components supply network will never come to an end but I predict that the severity of some of the supply and demand issues we’re currently experiencing will decline into the 2H’21 before becoming more acute in 1H’22 with the global roll out of 5G handsets and infrastructure and increased investment in High Performance Computing and transport electrifi cation. Much depends on how strong the underlying global economic growth really is, how rapidly components manufacturers are able to invest in new capacity and what other “new” challenges appear… Across the electronic components supply network suppliers and customers are managing to work through current and emerging challenges collaboratively but as an industry the electronic components supply network just has to get better at forecasting demand. Recent events have proved that
supply diffi culties can be mitigated by effective engagement with partners both up and down the supply network. Please ensure your organisation is ‘playing its part’...
For information
Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice.
“…Promoting Positive Collaboration Throughout the Electronic Components Supply Network to Benefi t Members and the Economy…”
www.cieonline.co.uk
Components in Electronics
June 2021 11
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