COVID has now apparently peaked in the UK, but it will be some time before the supply chain returns to normal, writes Steve Rawlins, Chief Executive Officer of Anglia Components,
Even in China, where COVID-19 cases peaked back in February and are now relatively low, manufacturing is still not back to full strength.
There remain challenges with getting staff into factories and the need to adopt new working practices to comply with social distancing guidance could mean production capacities not returning to pre-COVID-19 levels for the foreseeable future.
Many suppliers’ manufacturing capacity was badly impacted for periods due to full or partial shutdowns, creating a backlog of orders.
On top of this, additional demand for products from medical applications and the return of the predicted usual business demand returning in Q3/4 will mean that distribution channel inventories will get depleted even further than they are now.
There are still massive shortages of chip MLCC and chip Tantalum capacitors. This is exacerbated by the fact that the market in 2019 was flat, so that many manufacturers have not invested in capacity and in some cases even mothballed facilities.
On semiconductors, microcontroller and MEMS lead-times have now moved out and many are on 30 weeks+.
There are currently long delays on back-end packaging, particularly on the very popular SOT23 package and derivatives.
Power semiconductors such as SiC, IGBT and MOSFET, are in demand for electric vehicles and charging stations, and as a result we are seeing some longer lead-times on these too. Our expectation is for lead-times to increase further in the coming months with the possibility of allocation on certain products.
It is already very apparent that Coronavirus has pitilessly exposed the fragility of the supply chain in our industry.
The simple fact is that there is not enough inventory in the system and much of it is held too far from the UK customer.
Anglia does hold high levels of stock in the UK which puts us in a good position to support our customers through the current issues and we are continuing to invest to meet the expected increase in demand. 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 norm – but we are a stronger business for it.
Even where our stock becomes depleted, we do not believe in sourcing outside our usual supplier base, giving our customers an assurance of the integrity of their supply chain and the quality of devices they source from us.
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, which reduces the resilience of our industry. This is clearly demonstrated by the significant demand that Anglia is seeing from Chinese distributors, EMS and OEMs, but we are carefully protecting our inventory for our valued UK customers.
We know from experience that demand from China to meet shortage leads to similar demand patterns in Europe within a quarter. We would encourage UK OEMs and EMS, however, to get orders and inventories in place for their Q3/4 requirements.
We are working closely with all our supply partners with production and/or logistics facilities in the impacted regions to identify any potential disruptions to the supply chain, and to maintain our stocks to support customer demand. The better visibility we have of what our customers’ mid- to long-term requirements are, the more successful we will be in fulfilling them.