Parts shortage hampers electronics supply chain

1 September 2010

1 September 2010 | Angeline Albert

A shortage of finished components has led to congestion in the electronic manufacturing industry supply chain, according to research firm iSuppli.

The firm said part suppliers in the sector are facing a challenge, with plenty of raw materials available, but few finished parts and products. And these shortages are likely to continue until later in the year, even if demand begins to fall in the meantime.

These supply chain blockages arose from vendors’ inability to rapidly increase production to meet demand after the recession, said Thomas Dinges, iSuppli electronic manufacturing service analyst. Problems for buyers had been predicted after vendors slashed inventory during the downturn, and the manufacturing industry experienced a subsequent upturn this year.

“Given that many suppliers were shuttered during the last years because of financial distress, the shortages have resulted in supply bottlenecks in industries,” said Dinges. “Such shortages - in both parts and raw materials - will only add to the strain of electronic manufacturing service (EMS) providers, even if they were to train their efforts at simply maintaining current levels of inventory velocity.”

A snapshot of inventory at five large EMS providers in the iSuppli report showed parts and raw materials accounted for 68 per cent of total inventory during the first quarter of 2010. Work-in-process goods made up 17 per cent, and finished goods comprised less than 15 per cent. Completed products were at their lowest level since the fourth quarter of 2008.

“The current trend - in which electronics inventories are being weighed down by an overwhelmingly large percentage of raw materials - will continue for some time, given more product in kits are waiting to be finished,” added Dinges.

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