Kevin Parmenter, Director, Applications Engineering. TSC, America
As I write this, we are locked in the “bust” part of the boom-bust hysteretic cycle that plagues the electronics component industry. Since I began working in the semiconductor industry in the mid-1980s, I’ve seen these swings occur randomly from rail to rail. The causes stem from industry attitudes toward product demand, which flip back-and-forth from “we need more business!” to “don’t bother us, we are sold out until forever and lead times are 99 weeks!”
However, this one seems worse. It was caused by the perfect storm of tremendous content demand for electronics – including transportation systems -- and the unprecedented Covid 19 pandemic. The problem was exacerbated by the age-old practice of those in finance and operations removing all the elasticity out of electronic components supply chains while cheerleading the “inventory is bad” mantra. On top of this just-in-time, build-to-order mandate at electronic components companies, the pandemic led to car makers to stop production. Even car rental companies panicked and dumped their inventories.
But the demand for automotive electronics didn’t go away during the pandemic – the canceled automotive electronic component orders were sold to the consumer and communications companies. Once the transportation electronics companies realized the error and tried to re-order the components it was too late. In fact, the need for all things electronic continued to grow. Unlike during the pandemic the early 1900s, during Covid we now had technologies to help us stay connected. Meanwhile, we continued to drive our cars. And vehicles needed to deliver the increasing amount of food and goods we bought online.
The global automotive electronics market (a subset of transportation) is expected to grow at a compound annual rate of 7.9% from 2021 to 2028 and will reach USD 392.49 billion by 2028, according to Grand View Research. If the only electronics industry based its growth predictions on the actual content needed for vehicles, as well as the electrification and automation of transportation.
If you have been in the electronics industry for more than 15 minutes you will likely know how obsessive everyone is with “forecasting” growth. I would like to point out that if forecasting made any difference, this bust cycle -- and those that came before and will come after – wouldn’t have occurred. Instead, forecasts are either ignored, inaccurate or both. Often decisions are based on misguided cost-cutting or egos.
So now we find ourselves in the great semiconductor famine of 2021, which might last well into 2022. The electronics industry needs to stop the boom-bust cycle of being caught off guard when demand skyrockets. Human beings are awful at predicting the future. Here is an idea. With all the computing power available now, forecasting could be easily automated. Imagine, component makers could build to actual demand and supply chains would hum on.