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Rising Electronics Costs

Rising Electronics Costs

The electronics industry has experienced significant changes in recent years, particularly with the globalization of the supply chain. The migration of manufacturing capacity to Southeast Asia was fueled by the low logistics and shipping costs, particularly from China. This transition to a global supply chain has enabled most of the manufacturing capacity for electronic components and assemblies to be offshored from consumer markets.

However, the tide has slowly turned over the past 20 years as logistics costs have generally risen, and there has been significant volatility in component costs driven by shortages and broker activity. The COVID-19 crisis and subsequent increase in consumer demand driven by stimulus in industrialized countries have amplified this trend, leading to unprecedented demand coupled with a labor shortage and general parts/raw materials shortage. These factors have resulted in pricing increases for shipping, electronic components, and ultimately inflation for producer and consumer goods.

To understand how these factors drive the costs of electronics manufacturing, three areas should be examined: logistics and sourcing costs, parts and production costs, and intangible costs. Low-volume versus high-volume production also plays a significant role in cost differences for parts. Semiconductor manufacturer margins have remained relatively constant, while the costs to produce components have decreased over the long march of time since the mid-1990s. However, for low-volume production, smaller producers and OEMs are often forced to rely on broker networks, which leads to increased costs, risks of theft, fake components, and defective real components.

In addition to these tangible costs, there are intangible costs that are not obvious simply by looking at parts and shipping costs. These factors, such as impaired competitiveness due to component delivery delays or out-of-stock parts, increased design effort due to variant creation, and lost market share due to product delivery delays, can significantly impact a company’s ability to be competitive and gain a first-mover advantage over other businesses in the same industry/vertical.

While these costs will always persist in the electronics industry, recent events on the world stage have made control over these costs much more important, and they have hit closer to home for consumers who just want to purchase the latest gadgets. To maintain a sustainable supply of raw materials and parts, stay on production schedules, and ultimately deliver product to market, design teams need to anticipate problems and address them operationally. Identifying possible alternative components and regulatory constraints early, creating orders early and locking in part selections based on features, and creating design variants before production can help balance parts availability with demand.

In conclusion, while the challenges outlined above are waning for now, the cyclical nature of electronics production and consumer demand means that additional planning on the front end can keep companies competitive and on-schedule on the back end, and some prototyping spins might be eliminated as well. By being proactive and anticipating potential issues, companies can minimize the impact of these costs and maintain a competitive edge in the electronics industry.