Ignys MD Richard Fletcher shares his first-hand knowledge of ways to tackle the chip shortages, and his predictions on how the situation will evolve over the next year.
Richard has spent over 20 years working in the electronics industry and runs Nottingham based electronics design and software development consultancy Ignys Ltd.
Why are the chip shortages a problem for electronic product development?
The chip shortages present a big problem if you have already designed a product and you are at the production stage. The chip shortages have stifled the ability to ramp up volume, and take product success stories to the next level, as the right material is not out there. These supply chain issues can stifle or even completely prevent the ability to manufacture and sell a product.
Having a good awareness of the challenges is the first step, understanding how to tackle it comes next and then, most importantly, taking the right course of action.
The power of prediction
Having visibility through robust forecasting, and the capital, or preferably credit terms, to commit to purchasing parts many months ahead of time gives you a real advantage. Unfortunately for new products, or for smaller companies this is often harder to navigate.
Accurately predicting sales until you have some historical data may not be possible, or could be more art than science. Companies planning to launch products in volume within the next 12-months and those in a post-launch volume ramp-up will have to accept a higher than usual level of risk in this climate.
This could include ordering parts before your design is fully proven or even before the design is completed! To mitigate the component shortage impact, stay on track and remain competitive.
If you are at the concept and prototyping stage this gives you greater options to Design For Availability from the start.
Top ways to navigate the chip shortages
We are asked repeatedly by product developers and customers; how to handle the chip shortages. Luckily with the right upfront planning, and by working with knowledgeable partners, there are many ways to still come out on top. The tech industry is still booming and all the opportunities for growth remain if the right strategy is implemented.
Here are six points you can use to help you:
1) Put Design For Availability Top of Mind
What is Design For Availability?
Design For Availability turns the traditional supply chain and product development relationship on it’s head.
Under ideal circumstances you would design a product with exactly the right parts for you, the right processor, transceivers, modules, SoCs, power supplies, connectors, and displays for example, first. You would check the lifecycle of components to ensure they weren’t obsolete, verify the lesser-known manufacturers and then you could go ahead and design the product; with the expectation that the parts would be available quickly through the usual low volume distributor web shops.
When the design was proven, or the majority of component risk removed through testing the volume orders could be placed with typical lead times of 8-12 weeks. Currently, you can’t design products that way, with the market being as constrained and volatile as it is. Often you are forced to use the less-than-ideal choice of components, which may not have all the features you want.
You must be willing to accept compromise on your planned design. Your components may be larger or more expensive than desired. You might need to split the design into 2-3 parts instead of one module.
This is a market availability led approach based on practicality. You will often find you have to work with suppliers you are less familiar with or don’t have existing relationships with.
Why this approach is important
If you choose to continue down the traditional route, to finish prototyping before securing parts, you’ll find when you are ready to commit to volume there is an exceptionally high chance that your design can’t be produced.
It will be tricky to source parts in high volume in anything resembling a timely manner. This means you are left with two options; waiting a very long time for components or facing a costly redesign.
2) Work with an electronics design partner
This may be the first project you have worked on where chip shortages present a major problem. However, this situation has been familiar to electronics design companies, daily, for many months.
They have customers old and new knocking on their door, in trouble with their designs, and asking for help.
Good design partners have been dealing with and shouting about this situation for a while now. What’s more they are regularly talking to manufacturers. This means they have greater experience in sourcing components, understanding the challenges and have more visibility on what’s available.
In addition, working with less familiar components means more complex design work that requires experience. All this knowledge adds up to offering you a better chance of success.
3) Do your research when you order ahead
Don’t take lead times on supplier websites at face value. Manufacturing availability is extremely dynamic and changes are constant. If you place an order based on what you see online alone, you may find yourself in trouble.
If you opt for the grey market route, be wary of factors such as the provenance of items. of items.
Are they genuine parts? Are they from a reject line? How have they been stored? Many electronic devices are hydrophilic, they absorb water which causes damage when rapidly heated during solder paste reflow. If you know it has been stored poorly you can mitigate this by using baking-in cycles in an oven to drive off the moisture. If you don’t then you may get production issues.
4) Be aware of rising costs. Of components AND design
The electronics design process takes longer now. Engineers need extra time to source parts and they need to find new ways to achieve the correct functionality with the components available. Where integrated circuits or system on chip devices would previously have been used it may be necessary to implement some functionality using discrete components or with multiple ICs. As demand vastly exceeds supply, costs of components are rising sharply, in many cases being 3-10 times the price of pre-chip shortage work.
5) Consider your feature set
It’s worth looking at your chosen feature set and questioning if you need each of them. Every feature you use adds to the supply chain issue. You may find dropping a feature helps you get closer to cost neutral without alienating your target audience. For example, why have you got 5 USB ports when your buyers won’t use one at all?
In some cases, there may be ways to value engineer your product. If you are in the process of redesigning due to the chip shortages it may be that a cost reduction exercise is worthwhile since you have added design costs, that extra spend could go a long way.
5) Get commitments in writing
Be aware that your purchasing team will be buying components and dealing with all the challenges and risks this entails. Work closely with other departments to make sure you know which deadlines can change and which are set in stone.
Wherever possible make sure you have commitments in writing. Verbal promises or online lead times are not concrete in the current climate, and you could find yourself in hot water if you rely on these unpredictable delivery times.
6) Connect within the industry
Have conversations with suppliers and distributers, ask those difficult questions and request guarantees. Having discussions with design partners and manufacturers allow you to form a far better picture than just researching parts online. This way you can build up a network of support so that navigating your projects is a less solitary task.
Richard’s speculation on how the chip shortages will evolve over time
Richard Fletcher from Ignys speculates on how long chip shortages will remain a major problem for the electronics industry and product developers.
“I suspect there will be no defined end, instead we will likely see a gradual return to almost normal, potentially within 9-12 months. Potentially starting to see improvements in mid-2022. At this stage we should see some of the pressures ease across the supply chain. In addition, I suspect many buyers are currently hoarding large amounts of stock for product development purposes. We should see some of these parts back on the market as companies, who don’t end of using these components in their design, start to sell them back to suppliers. This will add a much-needed extra resource for buyers. Similar to the pandemic no-one truly knows how things will evolve but no doubt extra solutions will take place over time as suppliers and component manufacturers react to the crisis. In the meantime we can all share our knowledge and tactics to help each other through and continue to bring great products to life.”
More on chip shortages and tactics
The Ignys team have written a further extensive article going more in-depth into the reasons behind the chip shortages and additional ways to approach the situation. You can read the 18 minute chip shortages article here. You can also read a success story with their Design For Availability case study.