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I recently spoke with Paul Ratner, a senior account executive at IHS Markit, about his AltiumLive presentation, which is now available online. Paul discusses some of the takeaways from his presentation, and he offers some advice for technologists who are grappling with long lead times on components, as well as some predictions for the rest of 2022 and beyond.
Andy Shaughnessy: How are you doing, Paul?
Paul Ratner: I’m doing really well, Andy. How are you?
Shaughnessy: Good, good. Nice to meet you, even virtually. I understand you’ve given a presentation at AltiumLive. Why don’t you tell us about it?
Ratner: Yes. We are partnered with the Altium team, as IHS is part of the electronic tools they have, the CAD tools and the design tools that they sell actually do have an option for IHS data to be included, and so Altium reached out to us to see if we wanted to participate in the AltiumLive event. We do have some interesting insights at IHS because we actually talk to all the major electronic component companies as we build this database of over a billion parts, which contain all sorts of electrical attributes and information on each individual part.
This feeds into the Altium tools. Altium came to us and asked if we could put some of the technical attributes into the Altium tools. And so my presentation really just covers some of what we’ve seen as we talk to all the different component manufacturers. We talk to all the OEMs, all the subcontractors for military builds--basically all the major companies that do any type of electronic end products. And we have some insights, which include supply chain information, environmental content, all sorts of other different things.
Shaughnessy: So, what are you seeing in the market right now? Is it as bad as everybody says? Or are there bright spots? What do you think?
Ratner: Well, we have 5,000 analysts at IHS because we deal with more than just electronics. We have divisions that handle maritime and trade, automotive, oil and gas, finances, etc. So, those 5,000 analysts came up with some predictions for 2022 and they did publish them. But some of what we’re seeing is that in the supply chain--of course across all of the supply chains--things are tight, but it tracks along with what we’re seeing in electronics, which is that lead times have increased. And all indications are--and in my presentation you’ll see--that these lead times aren’t coming down. Right now, they just continue to stay up and kind of climb gradually through the year. And we have some tracking that we share in the presentation that shows month-on-month-on-month of this gradual climb of lead times.
So, it’s tough because we can’t predict what’s going to happen this year. So many factors with COVID coming and going and we think we’re getting ahead of it, but we can show you what historically has happened up to this point. It’s going to be a tough year. That’s basically what our analysts are saying.
Shaughnessy: I think people expected it to get a lot better once we unclogged the container ship problem in Long Beach and Shanghai, but there are still 50-week lead times on some components. What would you advise anyone designing a game for the 2022 Christmas season?
Ratner: I actually talk about that a little bit in the presentation because at this point, where the shelves have been mostly cleaned off and the pipeline is 36 weeks, you can’t afford to have products sitting there waiting for components to come in.
There are a couple places people have not looked to try to keep the supply chain running. So that might be cross-referencing products, looking at different tech attributes to see if you could tweak the design a little bit, and using parts with different tolerances, voltages, and packages. There are some secrets to making that work, including tapping into some other inventory markets—EMS companies, contract manufacturers, etc.—where there may be some excess inventory you could purchase.
Shaughnessy: You’re monitoring this. Do you have an idea how many components are produced each year? Are you that granular with it? “Oh, there are X number of 0105s.”
Ratner: Oh, boy. I don’t know if we’ve ever tried to total it up, because IHS doesn’t purchase anything. We’re only working with customers, and we don’t get the procurement data from them that says, “This is how many units we’ve purchased of XYZ part this year.” All we could look at is trends. We do have trends by part that actually show what the lead times have been month-on-month-on-month, and pricing--what the price has been month to month because we get feeds of pricing and availability data. Over the last two years, since the supply chain issue started popping up, we actually started tracking and graphing it.
You could actually see, is this part trending longer lead times, or is the stock there and then all of a sudden gone? It gives the engineers at least a base point to say, “Hey, I got caught off guard by this part.” And they could look back and say, “Yeah, clearly this is what happened. There was plenty of inventory. Then the inventory dried up, then the lead time jumped up, and then the price jumped up.” So they could go back to their managers and say, “This is what happened. We’re having trouble. This is why this program is now more expensive; it’s because of these three parts, and here are the graphs showing you exactly why.”
Shaughnessy: And in the middle of COVID, a few factories in China that make the chemicals that go into laminates burned down or they had different problems and that screwed up the laminates. And it was like a perfect storm.
Ratner: I’ll tell you, if you’ve been in the electronics industry for a while, you’ll understand there’s always something. Chip shortages, floods, fires, and tsunamis. All it takes is one thing to throw that supply chain into trouble. But what happens is usually it just affects caps, or maybe imicrocontrollers. Something in the electronic supply chain jumps up and everything else is just fine. But what we’re seeing and what the graphs in the presentation show is that it’s across the board. Everything went up. Because you can’t build components remotely in the plants overseas; the people have to be in the plants to actually assemble the products and machinery. So, if they’re shut down, even for just a few weeks, now that just adds those weeks onto whatever lead time you had. So, that was one of the issues that we found.
Shaughnessy: Is there no monetary incentive for another component manufacturer who doesn’t normally make these specific components to step in and start making them?
Ratner: Well, this marketplace, even with the new stuff that the Biden administration rolled out with the additional spend and incentive to have U.S. manufacturing and fabs come back here, you just don’t assemble a fab in a year. It’s going to take a couple of years before you get a fab even built. And then it takes a while to get the recipe right and product coming through it. So, we’re probably at least three years away from that incentive package actually helping anyone.
Right now we’re reliant on the current supply chain. Hopefully, it’s going to actually shake out a little bit more once the consumer electronics guys get their orders fulfilled, then the automotive guys get their orders fulfilled. Because what happened was during the COVID crisis, there was a dynamic shift because the automotive guys canceled all their orders. As soon as COVID happened, everybody’s staying home. Nobody wanted to make a big purchase of a car. Nobody had to go anywhere. So car purchases went down, all the major manufacturers said, “Hold on up on orders, cancel orders, whatever. We’re not going to build that many cars this year.” But then consumer electronics took off because everyone’s home, everyone’s buying computers and modems and all the things that go around that.
What ends up happening is those guys got all their orders in place and started using all the electronic components coming down the pipe, and then when automotive does finally come back they have pent-up demand because people didn’t buy cars for a year or two. Now, everyone’s coming back. It’s like, “I want a new car,” and they’re not there. So they go to place their orders with the electronic components guys and they’re like, “Well, you have to wait till Apple gets their parts first.” They have to fulfill those orders. Those guys didn’t walk away over time. They actually ramped up. So, it’s kind of an interesting scenario.
Shaughnessy: It seems like everybody’s blaming the automotive companies. Who do you think is stockpiling all of these parts?
Ratner: Well, I think it’s everybody. Because if you think about it, as soon as you heard there’s a toilet paper shortage, what did you do? You bought two or three cases of toilet paper and you stockpiled them at home. And then what happened was that led to the shortage because everybody started buying more than they needed, and then the manufacturers couldn’t keep up. And so now it seems like that problem’s over but is there a lot of toilet paper on the market? There probably is when you go to the store now.
Shaughnessy: What would you say is the big takeaway from your presentation?
Ratner: The big takeaway is that for design engineers, they’re going to be tasked with going the extra mile this year because not only are they down on the headcount, most likely, just because companies and the people retiring and things like that, they have to do more with less. So using any type of tools they have, because there are tools out there, and the management at these companies are willing to invest this year in tools because they know that they have a light staff, they know they have to get these problems solved. So, they’re willing to spend money on tools and technology. So hopefully, these engineer-level people are taking advantage of that, asking their management to give them the tools they need.
Get some tools and be imaginative about what you have to do because design engineers are going to be asked to actually get involved in supply chain and make sure that they’re designing parts you could get and finding different ways to classify our second source of parts. You’re going to be asked to step out of the box and find new solutions. So, use whatever tools you have at your disposal now, or go and get additional tools to help. IHS has a ton of information as we are really an information and data company. So we get to see what’s going on in the marketplace and give some great feedback. So yeah, if you go online, you can find some really great analysis for 2022.
Shaughnessy: Sounds like you have a fun job. Fun, but maybe stressful, I guess.
Ratner: There are times.
Shaughnessy: Well, thank you, Paul.
Ratner: Thanks, Andy.
View Paul Ratner's presentation Supply Chain Insights from IHS Markit below.