Navigating a worldwide chip shortage
By Aaron Nursey, founder, CEO & president, Direct Components Inc.Semiconductors Supply Chain chip distribution Editor Pick semiconductors shortages supply Chain
Firms must be more vigilant than ever when securing the parts they need
The past two years have brought a unique set of challenges to businesses of all shapes and sizes. Supply chain issues have plagued industries around the globe, and manufacturers and suppliers have had to struggle to keep goods flowing. The microchip industry has been no exception to the recent turmoil, and with a worldwide shortage of integrated circuits (ICs), manufacturers have had to scramble to keep assembly lines moving.
While the phrase ‘chip shortage’ may seem daunting, there has always been shortages of chips and electronic components. This does not take away from the severity of the current shortage, but the fact is that there has never been a free flow of parts. The reason why Certified Independent Stocking Distributors (ISDs) such as Direct Components exist is because we help companies secure hard-to-find parts that are not readily available.
It’s times like these when companies must be more vigilant than ever when securing the parts they need. As supply chain have crumbled over the past couple years and OCMs have been unable to fulfill just-in-time orders, many companies are turning to the open market for the first time purchase valuable parts. While the open market is a great alternative to OCMs and franchise distributors, buyers should always proceed with caution.
There has always been counterfeit parts on the open market, but it has nearly tripled in the past year, as counterfeiters have seen an opportunity to take advantage of new faces. The problem with counterfeit parts is that they sometimes work. When counterfeits don’t work, the only harm is wasted money, but when counterfeit parts work, companies run the risk of selling a product that will malfunction soon after it is purchased. When dealing with mission critical or life-saving equipment, the consequences can be catastrophic.
Ensuring risk is minimized
As companies venture into the open market to find the parts they need, there are several things they must keep in mind to ensure they minimize risk:
1) Know your options: When buying from the open market, you will have plenty of options, but not all are created equal. Open market options range from ebay, to brokers, or to Certified ISDs, which can represent the lowest risk option.
2) Know your certifications: Just because an ISD can point to a certification on the wall, your vetting work is not necessarily done. Seek out ISDs who are certified by respected auditors like NQA which have rigorous and high standards for the companies that they certify. You want to make sure that the parts you buy have undergone a rigorous testing process to ensure fit, form and function.
3) Know your price: Price isn’t everything, but price matters. Know your purchase price variance and how much you can afford to pay for your parts. In this market, it is not uncommon to pay 10 or even 100 times the “normal” price for chips. Depending on your application, this may or may not be possible for you.
People ask me all the time when I think the current chip crisis will be over. While I cannot tell the future, I will say I am hopeful. This shortage will not last forever, but it will most likely not get better all at once. Some things will get better, but some things may still get worse. While there will be relief in sight for some, it will most likely be at the commodity level, for example, DRAM ICs may start to come out of the factory quicker than they are now. That said, there are always unknown factors around the corner. Most recently, the war in Ukraine ignited a neon gas shortage, which threatens chip production due to the use of neon in a chip production process known as lithography.