With almost every category of electronics components pushing lead times between 16 and 52 weeks or more, chip shortages continue to cause disruption on a global scale. In the Q3 2021 edition of Supplyframe Commodity IQ, Supplyframe CMO, Richard Barnett, describes the situation, saying “red is the new yellow,” citing a 77% increase in the number of commodity dimensions now in red status.
A glance at the Lead Time Analysis in the Q3 2021 report also shows that critical components like microcontrollers and microprocessors (MCUs and MPUs) are increasing past 52 weeks or more, with relief not coming until the first quarter of 2022.
While there’s no solution that can immediately resolve the current situation, there are strategic decisions to be made that can help navigate these expanding lead times. Join us as we explore best practices and examine how industry leaders like Apple and Samsung are weathering the storm.
Apple vs Samsung: The Red and Blue Ocean Strategy
There are numerous ways to approach the current landscape, but if we look to two industry leaders like Apple and Samsung, we see an approach that spans across red and blue ocean strategies.
Let’s begin with Apple, which employs a blue ocean strategy by constantly innovating and taking careful steps to retain their edge without flooding the market. By iterating and improving their products, the company is constantly adding new models packed with the features consumers want.
This requires heavy investment into R&D, but from a component sourcing standpoint, Apple depends heavily on vertical integration of its value chain, but still faces upstream constraints with key foundries and other key suppliers.
One example of this is the acquisition of a long-time supplier’s assets. When Apple purchased Dialog Semiconductor for $600 million, they did so as part of a vertical integration strategy that would help bring production of certain chips in-house, thereby leading to higher efficiency and lower costs.
Of course, there are other areas where Apple still depends on external suppliers. Even one of the company’s latest breakthroughs, the M1 system on a chip (SoC), is manufactured by industry giant TSMC. This same supplier also manufactures the A15 chip used in all four iPhone 13 models.
Meanwhile, Samsung employs a red ocean strategy, focused on observing competitors, identifying weaknesses, and building upon those faults in their own designs. From a supply chain perspective, the company employs a focus on leveraging volume spend with key suppliers and leveraging unique internal capacity across other divisions to supply key components such as OLED display and key IC chips to achieve total control over production chains.
By developing most of the components used in their products, the company sidesteps the need to outsource certain processes, but this is not accomplished without time and significant investments. It has also led to numerous legal battles between the two over patents and technology.
Fast-forward to 2021, and smartphone manufacturers like these are just beginning to feel the impact of the ongoing component shortages. Other industries like automotive have been feeling the strain for some time, due to a drop in demand, followed by a surge heading into 2021.
Throughout all of this, smartphone manufacturers stockpiled components, allowing them to have a supply available to them, but now even that backup is running out.
“Now that the automotive sector and others are catching up and starting to reclaim the capacity they had given up, there is a fierce competition for semiconductor supply. This has created supply pressure for smartphone chips.”
– Syed Alam, Global Semiconductor Lead at Accenture
While there are benefits to both Samsung and Apple’s approach to managing their supply chains, the fact remains that not even they themselves are immune to the ongoing shortages. Given this, industry leaders need a secret weapon to navigate shortages and extended lead times.
How to Navigate Extended Lead Times With Supplyframe Commodity IQ
Adopting aspects of Apple or Samsung’s approach could help prior to the brunt of chip shortages, but in the midst of the storm, organizations need something to give them an edge over seemingly insurmountable obstacles.
In the past, we’ve explored ways to reduce the overall lead times for components on your BOM, but in today’s climate we need to identify potential risks even earlier and adjust for emerging trends. Knowing where potential risk exists can allow manufacturers to target alternate suppliers, or negotiate more favorable contracts.
This kind of intelligence and insights is only possible using the data within Supplyframe Commodity IQ. Our solution provides up-to-date component lead time analysis across active and passive components, analyzing published lead times from over 600 million parts across 180 global distributors and 27,000 suppliers.
Our DSI partners, composed of commodity managers, market analysts, and subject matter experts, review these changes based on direct sourcing events and combine it with market analysis to capture and identify emerging trends.
All of this is filtered into over 20 sub-commodity categories to provide both quarterly updates and weekly net-change updates for subscribers. This is just one example of what Commodity IQ can do for your organization. Discover a transformed approach to market intelligence with Supplyframe Commodity IQ.