Successive cycles of shortages of chip passives have accelerated the trend for customers to specify ‘generic’ parts on the bill of materials (BOMs) rather than calling for 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 a generic diode designation, leaving the EMS to select the vendor depending on what they have in stock or what they are able to source.
This pragmatic approach has clear benefits for customer, EMS and end-user alike. From the EMS point of view, it reduces the need for inventory, as they will not need to hold the same value and size from different manufacturers. It also means that they can make efficient use of their inventory, using up reels left over from a previous project. For parts costing a fraction of a penny, storing them can cost much more than acquiring them, so this is a substantial issue for our EMS customers.
For the customer, generic specification reduces supply chain risk. In the current market, this risk is significant. Demand for chip passives has, for some time, exceeded supply and this is unlikely to change in the next eighteen months or so. In this situation, available supplies are routed to the volume customers in the automotive and consumer electronics sectors. This is the market we’re in right now. High volume users of components in the automotive and consumer electronics sectors are ramping up quickly. There are now only 3-4 large manufacturers of tantalum chip manufacturers left, and essentially they service the industrial market when they can. In this context, insisting on a specific brand of passive or discrete semiconductor device on the BOM 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 which has led to an overall enlargement of the inventory level we hold of these currently scarce devices as well as the addition of a further source for our customers.
Nevertheless, the fact remains that right now there is not a great deal of inventory in the supply chain globally, especially for chip passives and discrete semiconductors. Customers need to give their EMS the best possible chance of sourcing quality components to build their design by being pragmatic about the use of generic devices wherever reasonable and possible. They also need a partnership with a strong distributor who understands the importance of maintaining sufficient inventory to support its customers, 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% of our annual sales. This is five-six times the level of the industry. To fully benefit from this, they need to give us, and their EMS, their best possible forecast of forthcoming demand.