Issue link: https://iconnect007.uberflip.com/i/1392944
56 PCB007 MAGAZINE I JULY 2021 whole supply chain would be im- pacted. When we started recover- ing from the pandemic, sudden- ly everyone was buying up large amounts. Not just six months in advance, but 18 or 24 months. It keeps the supply in a shortage state, and now we must find al- ternates so that we can build your particular electronic hardware in an environment that has normal shortages. You hear about this big econom- ic recovery, and it's true, it's happening. All the businesses are heating back up; they're trying to produce to meet the marketplace demand. But the kicker is that, just like nobody knew how to prepare for the pandemic, nobody knows how to prepare for this recovery. And the one thing you don't want to do is be the guy who can't de- liver a product during the recovery. Johnson: Now that everybody is redesigning for alternates, that increases the demand for al- ternates. Now lead times are shiing for com- ponents that once had a more acceptable lead time. By the time the redesign is done, lead times have doubled. McMeen: Exactly. is whole procurement cy- cle is out of balance because things that had never been on a shortage list are now becom- ing shortages themselves. If you're on the man- ufacturing side of components, you've got nice orders covering a long period, non-cancelable, and you're in pretty good shape. But this is go- ing to trigger another out-of-balance sequence. Right now, we have a shortage. Everybody is putting on capacity, and they have these non- cancelable orders. ey're gearing up produc- tion, they're adding new lines, they're adding people, they're adding to this recovery. But re- member, it's a false volume because it's an ex- pected volume for the future. Your customer hasn't given you two years' worth of orders, he's given you their normal order demand and you're expecting it to stay at this elevated run rate because we're in this massive recovery. At some point, we're going to go from be- ing in a shortage to a surplus be- cause we will have bought too many raw materials or compo- nent sets. e shortages are going to drive inflationary pressure. Ev- erybody will raise prices on their components because they're try- ing to get higher volumes through their factories that had slowed or stopped dur- ing 2020. Now they are trying to get their front lines back up and they are finding these long run cycles because they have all these or- der demands. e supply chain will blow past equilibrium and go back into oversupply. is will drive the pressure economically to drop the price so that you can move your inventory. At what point do we hit equilibrium and how well can we manage it when we blow past equilibrium and go to an oversupply? Nobody knows what the future is. We're in uncharted waters and everybody is just trying to maxi- mize their revenue streams because we had a lean 2020 and now a bumper 2021. What will the next two years look like? How long will it take to come back into equilibrium? Johnson: is puts responsibility on the com- ponent manufacturers to show restraint in their ramp-up, even if that means a slightly longer bump in demand to smooth things out, rather than to overbuild infrastructure just in time to have everything fall out from under- neath them. McMeen: Right. But the history in our industry shows a struggle to find that equilibrium and normal growth rate. Memory is notorious for this. ere will be a run-up, and memory pric- es will be strong with strong margins. Sudden- ly, they'll hit equilibrium, but the factories are still churning. So, the memory prices fall be- Mark McMeen