This is not the first time that our industry has faced allocations. Any sudden unexpected upturn in demand triggers longer leadtimes and eventual allocations until the component manufacturers add enough capacity to catch up with demand. This time, though, there is a difference.
In previous allocation cycles, the component manufacturers’ response has been to stop taking orders when leadtimes begin to go out beyond 52 weeks. Now, some manufacturers are encouraging customers to place orders for delivery up to the end of 2019. The difference is that these orders are on a No-Cancellation, No-Return (NCNR) basis. This changes the paradigm because it seeks to avoid the collapse that typically follows a period of allocation. The usual sequence is that, during allocation, customers double-order in the hope that at least one manufacturer will be able to supply. As soon as the manufacturers increase capacity to meet the real level of demand, the duplicate orders are cancelled and the manufacturers are left with surplus capacity. It remains to be seen how many customers will place NCNR orders for deliveries into 2019.
In the short-term buyers are still facing issues with anecdotal reports that on-time delivery from some distributors has dropped below 80% at times within the past 12 months. Charcroft’s own on-time delivery performance to key customers has also dipped slightly although has been maintained at a minimum of 98.5% on-time delivery over the same time-frame.
The reasons why Charcroft has been able to maintain high on-time delivery metrics are simple: long-term partnership with customers and suppliers, transparency and the willingness to proactively invest in inventory.
Increasing buffer stocks
By checking every line item, on every order, for all key customers we provide an accurate monthly leadtime update on every item. This allows our customers to continually update their MRP systems to ensure more accurate forecasts. Transparent sharing of these forecasts then enables more effective leadtime management. Keeping a close watch on leadtime trends also allowed us to put in place significantly higher buffer stocks than customers were forecasting before the leadtimes began to extend.
Mitigating the worst-case scenario
The good news is that leadtimes are beginning to stabilise, but there are still some products which need careful monitoring as shown in the leadtime trends. Aluminium electrolytic capacitors in an axial package, for example, are on a leadtime of 80 weeks, whilst metal-strip current-sense resistors are over 30 weeks, considerably longer than other current-sense resistor technologies (see Figure 2). The leadtime trend graphs for all products can be seen here.
The increase in power electronics in the automotive industry has driven up demand for current-sense smart technology, such as smart meters and phones, and affected availability of surface-mount ceramics.
In the worst-case scenario that a specific value of a component is simply not available Charcroft will always use both technical and commercial expertise to find a suitable alternative. This could be a device from the original manufacturer with a tighter tolerance or a higher voltage rating or a different package, or an equivalent device from a different manufacturer.
With extended leadtimes looking set to continue for some time, Charcroft will continue to work closely with customers and component manufacturers to do anything and everything possible to maintain on-time delivery.