There is a lot in the news currently about car makers and other manufacturers not being able to get the parts they need to build their products. We talked to Brompton Technology CEO, Richard Mead, to ask what it is all about and whether it is affecting Brompton.
There is significant disruption currently in the global supply chain – particularly for semiconductors (or microchips). Lead times (the time from order to delivery) are extremely long, more than 52 weeks for many parts, making it very difficult for product manufacturers to respond to changes in demand. In some cases parts are being discontinued at short notice forcing manufacturers to re-engineer products in a hurry.
There isn’t one single cause. It is a combination of multiple adverse factors, and the component manufacturers have referred to it as a “perfect storm”.
Some of the factors have been building for a while. Trade disputes between the US and China and also between Japan and South Korea have constrained raw material supply, raised pricing and increased leadtimes.
On top of this there have been several factory fires, earthquakes, and an extended drought in Taiwan (home of the world’s largest semiconductor manufacturer, TSMC) that have reduced capacity or slowed down the introduction of new capacity.
The Covid19 pandemic is clearly a big factor, as it has caused factories to close for periods of time and supply chains to be interrupted during lockdowns. A lot of manufacturers work on a “just-in-time” basis, meaning they keep relatively little buffer stock of parts, and so a small disruption in supply can rapidly have a big impact on production and the knock-on effects can take a long time to work through.
But it is not just about supply – it is also about demand. Over 2018 and 2019 the general trend was actually one of decreasing demand for semiconductors, and that will have slowed investment in building new capacity. Then the pandemic had the effect of rapidly increasing demand for consumer electronics, as people stuck in lockdowns redirected their discretionary spending away from travel and entertainment, and into home improvement and gadgets. At the same time “digital transformation” – the ongoing process of previously mechanical products becoming increasingly digital – is accelerating demand further. The big-name electronics manufacturers used their muscle to secure the supply they needed – but that further unbalanced the market and led to many other manufacturers being left high and dry. Other industries – such as automotive, medical and our own professional display solutions – were initially suppressed by the pandemic but demand has rebounded and now they find themselves fighting over the limited capacity that remains.
The market will find its way back into balance – but it will take a while. Most observers are expecting the supply situation to remain challenging throughout 2022.
Some of the balance will come from increasing supply, and there is a lot in the news about the investment being made in new capacity by large players in the US and Asia. But it takes a very long time to build new semiconductor fabs – up to 5 years from start to finish – so there are no quick fixes there. And because of that long timescale, the semiconductor manufacturers are not necessarily willing to invest in new factories that make older technologies that might become obsolete before the factory has paid for itself – so the new factories will be for the latest technologies and therefore new types of chips, meaning the actual supply of the existing chips used in the products we have today may not increase much at all.
In practical terms a lot of the balance will come from manufacturers re-engineering their products to design out older parts where supply is constrained and transition to newer parts with better supply. That process is always happening – but it is greatly accelerated by a shortage such as this. As large product manufacturers transition away from using older parts, that reduces the demand for those parts and starts to ease the supply constraints for everyone else.
This is a global issue affecting all manufacturers big and small – and Brompton is also being affected. Right now we would like to be increasing our production to meet the high demand we are seeing from the fast-growing virtual production sector – but no manufacturers are able to ramp up at the moment and the focus is on maintaining production levels. Right now we do have a sizeable backlog, and we are working closely with our suppliers to improve the situation as quickly as possible. We appreciate the support and flexibility of our customers in coping with longer lead times than usual.
Customers who are considering placing orders right now should take into account that delivery timescales are likely to be much longer than normal, but we expect the situation to improve as we move through the year.
