Anglia’s CEO, Steve Rawlins, argues that to give an EMS the best chance of sourcing quality components, customers need to be pragmatic about generic devices.
Successive cycles of chip passive shortages have accelerated the trend for customers to specify ‘generic’ parts on the bill-of-materials rather than a specific brand. Outside some really safety critical markets like aerospace and medical, most BoMs now simply specify a value and chip size for passives, or generic diode designation, leaving the EMS to select the vendor depending on what is in stock or what they can source.
This pragmatic approach has clear benefits for the customer, EMS and end-user. For the EMS, it reduces inventory, as they don’t need to hold the same value and size from different manufacturers. They can also make efficient use of inventory, using up reels left from previous projects. For parts costing a fraction of a penny, storing them can cost much more than acquiring them, so this is a substantial issue for EMS customers.
For the customer, generic specification reduces supply chain risk. In the current market, this risk is significant. For some time, demand for chip passives has exceeded supply and is unlikely to change in the next eighteen months or so. In this situation, available supplies are routed to volume customers in automotive and consumer electronics sectors. This is the market right now. High volume users are ramping up quickly. There are now only three to four large tantalum chip manufacturers and, essentially, they service the industrial market when they can. In this context, insisting on a specific brand of passive or discrete semiconductor adds significant supply chain risk, usually completely needlessly. Flexibility allows them to offer greater continuity of supply to their end-user.
This flexibility should not, of course, extend to accepting devices of unknown provenance sourced on the grey market. We would rather not supply than deliver a product of unknown provenance. Where we can, we will expand our supplier base instead. For example, we have signed a new partnership with Walsin, a top five manufacturer of MLCCs, leading to an enlarged inventory holding of these currently scarce devices.
Nevertheless, the fact remains that right now there is not much inventory in the global supply chain, especially for chip passives and discrete semiconductors. Customers need to give their EMS the best chance of sourcing quality components to build their design by being pragmatic about generic devices where reasonable and possible.
They also need a partnership with a strong distributor who understands the importance of maintaining sufficient inventory and watches the market as lead-times move in and out. Our policy is to run with high levels of inventory in relation to our overall business. We operate with a stock turn of near to one, holding inventory at a level of 50 per cent of our annual sales. This is five to six times industry levels. To fully benefit from this, they need to give us, and their EMS, their best possible forecast of forthcoming demand.