The last 18 months have been some of the most challenging that many of us have had to deal with both personally and professionally. It has often felt like we were riding waves, coming closer to things getting a little more normal, only to have them change radically. Looking forward to the next 18 months, I don’t see those changes getting any easier for us or our industry.
Pre-pandemic, the electronics manufacturing industry had very consistent patterns. August through December 2020, there were freight challenges due to peak season. January through March 2021, there were capacity challenges due to Chinese New Year closures. And there would be other smaller peaks and valleys during the year that we had all gotten comfortable managing. Our new normal seems to be challenge after challenge added to an already strained supply chain.
That being said, we would like to spend some time and address each of the core products we focus on and what our concerns for the balance of 2021 are with our customers.
Printed Circuit Boards (PCBs)
As the end of summer 2021 approaches, and the last quarter of the year is right around the corner, it certainly has been a continued challenge globally to try to get back to the new normal. This is true almost everywhere, including in the printed circuit board manufacturing business.
Some of the bigger issues have been lead time and lead time for materials. Why are these two separate subjects? Well, what used to be 20 days as a standard to process parts and ship on the 20th day (any quantity, any type of PCB) has become somewhat of a question mark for delivery at times.
Manufacturing domestic or offshore has changed in all markets. For PCBs, our base laminate was hit with multiple challenges, from the COVID-19 pandemic to Chinese New Year to gridlocked ports both abroad and here prevented product from getting to its destination. Add to that 5G and electronic vehicles’ need for copper for their products, well that sucked the rest of the normal life out of the circuit board production industry. We also had unfortunate news of two laminate manufacturing facilities having serious fires to cap off the challenge.
Thankfully, we have a great supply chain, years of experience in managing challenges, and a solid backup plan in place. We were more prepared than most, and although the same concerns are still here, the plan to support our customers with quality product “on-time” is and has been in place for many months. Q4 will unfortunately be more type of challenge. Add the holidays here and offshore and shopping online, well more delays will happen, but we are prepared as we look out into calendar year 2022 Q1 and Q2. However, you know what they say about early birds and the best-laid plan.
With the COVID-19 pandemic impacting global supply chains, it has affected just about every electronics market with severe delays in manufacturing and then receiving materials and components.
What used to be standard lead times for semiconductors in the 8- to 12-week range has now become up to 36 to 52 weeks to obtain. Common components such as capacitors, diodes, and MOSFETs are included in the shortages, and it becomes a challenge to find alternative substitutions compatible with the design requirements. Battery cells that used to be readily available with minimal lead times are now included in the list of long lead-time materials, especially higher capacity cells that are being allocated to large, long-term-contracted industries. With global shipping challenges contributing to the delays, deliveries are very unpredictable.
Literally everything from nickel tabs to wire and adhesives used in assembling custom battery packs and electronic products have become a challenge to plan production and delivery schedules to customers.
The current lead times are very unstable, and there is no indication that this will improve anytime soon. Reviewing product forecasts and planning orders up to a year in advance is now the general business approach until the component markets are restored to previous standard lead times. Ordering well in advance to have inventory available is another approach OEMs are taking advantage of with suppliers that offer stocking programs.
Flex and Rigid-Flex PCBs
The pandemic has had a significant impact on the flex and rigid-flex circuit board supply chain. Material costs have increased, specifically for the FR4 used in rigid-flex PCB designs, and for the copper itself, which impacts both rigid materials and polyimide materials.
Lead times have increased to varying degrees depending upon the materials specified and the production location. Offshore has seen a lesser increase than domestically. Domestic production primarily uses DuPont and Panasonic materials, both of which have seen a significant increase in lead time. What once was standard stock material at the distributors can now be upwards of 30-60 days delivery. The lead time can increase from there for the lesser-used or non-standard material configurations. Offshore flex circuit material lead times have increased but only slightly and are being well managed by our production purchasing team.
With the supply chain volatility quotes that were once valid for 30 days as a standard, with pricing and lead times that were stable for many months, now are only valid for 5 days and need to be reviewed if the time frame is exceeded.
To help serve our customers, we do offer stocking programs and allow for blanket orders with split deliveries over an extended 3-6-month period. Making a longer-term commitment allows the materials to be ordered and stocked in advance of production.
We anticipate that it will be sometime into 2022 before the supply chain issues have been resolved.
Human-Machine Interfaces (HMIs)
For supply chain managers, the task of sourcing custom electronics assemblies is supposed to involve issuing purchase requisitions, approving POs, all while mitigating the impacts of cost and lead-time risk.
Historically, buyers and purchasing managers have engaged in several types of contracts to execute their company’s sourcing strategies, addressing their short-term and long-term demand. Ideally, raw materials and labor are planned in level-loaded factories allowing manufacturers to offer predictable performance honoring long-term pricing agreements. However, if raw materials become scarce and labor pools fail to reach their pre-COVID-19 levels, supply chain managers will face increased pressure as electronics manufacturers are forced to scale back production.
This perfect storm of material and labor shortages has collided with a years’ worth of demand, and now everyone wants their orders fulfilled at the same time. Throw in the mess created from disruptions in ocean freight, and it’s clear that the post-COVID-19 electronics manufacturing world will face significant headwinds. Cost pressures have already been observed for commodities such as copper, gold, and silver. Even harder hit are the specialty materials manufacturers that produce inputs like resins, polyester films, raw silicone, and laminates, with lead times of 30 weeks or more being reported.
For products like keypads, touchscreens, and membrane switches, these all use specialty materials early in the manufacturing process. Hard coated polyester and polycarbonate films are used in several types of human-machine interface products. Traditionally these materials are drawn into sheets or rolls and shipped across the world to the many graphics printers that silk-screen or digitally print.
Indium Tin Oxide (ITO) is another specialty raw material that is deposited onto flexible sheets of polyester and is used in various forms within the realm of electronics manufacturing. Most commonly, optically transparent conductive ITO films are used in touchscreen assemblies and help register a touch event by sensing changes in capacitance or resistance. ITO films can be used as a transparent shielding layer providing inexpensive ESD and EMI protection to low profile devices.
But what happens if the raw material necessary can no longer be imported because of the price and shipping challenges? And even more frustrating, what if the specialty material has no direct replacement or equivalent? With few options, many manufacturers are proactively engaging their customer base to dual qualify specialty materials to manage the risk. Others are planning orders +12 months in advance to keep assembly lines filled.
Having a technical resource that offers design support, a robust logistics network, and stocking benefits is vital. Full-service manufacturing partners like Epec can help research alternate materials, qualify, and test the new designs, and stock inventory in our New Bedford, Mass. bonded warehouse reducing cost and schedule impacts to your project.
It was mentioned that challenges to the global supply chain don’t seem to stop coming. To be specific on those challenges, in a 7-day span in mid-August, we saw flooding in the Hubai Province in China that impacted more than 280,000 Chinese citizens, shut down businesses, and further reduced the freight capacity in China. That same time period also brought us the news of the service suspension of the Zhoushan/Ningbo port in mainland China due to COVID-19 cases in the area. When the port of Shenzhen/Yantian was closed, it not only tripled the wait time for containers to get on vessels, it increased costs to the US between 220-270%.
While we cannot control capacity, freight, material lead times, etc., we can control our response. Our commitment continues to be providing our customers with as much information, and education as possible. We will continue to provide updates on whatever new challenges are put in our way as we look to close out 2021. Even though it doesn’t seem possible, we are only 22 weeks away from the Chinese New Year, and it is never too early to start planning for that as well.