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14 SMT007 MAGAZINE I MARCH 2023 When can I start trusting my supply chain again? ere has clearly been improvement in the supply chain over the past six months. Overall lead times and material availability are gradu- ally improving. At the same time, both are still substantially worse than pre-pandemic levels and there are still significant constraints with a much shorter but still critical list of manu- facturers. Confidence in "commitments" from most manufacturers remains relatively low. As a result, confidence also remains low that all components required to build a product will arrive in the same relative timeframe. A state-of-the-art semiconductor fab today represents a minimum $10 billion investment with three to four years to achieve full pro- duction. At the same time, semiconductor demand is projected to grow from around $600 billion today to over $1 trillion by 2030, meaning that these investments will be largely to support incremental demand. e recent CHIPS Act is a very important step in the right direction but will still leave North American wafer capacity at less than 20% of global sup- ply, meaning we will still be largely dependent on a global component supply chain well into the future. ere will very likely be more areas of con- strained supply than in the past, even as the current constraints continue to subside. With the extended processing time of newer, com- plex components, and the extraordinarily high cost of unused semiconductor capacity, the electronics supply chain is unlikely to see capacity fully catch up with demand in quite the same way it has in past cycles. Supply chain strategies have emphasized "just in time" in the pre-pandemic world but this approach is obviously fragile when sup- ply chain disruptions compound as they have over the past two years. Given the growing complexity of global supply chains, the likeli- hood of continued constraints and the seem- ingly higher frequency of global disruptions, it is likely not the best strategy for the future. Instead, more adaptive supply chain strategies with emphasis on resiliency and agility should be required in the future to rebuild trust with supply chains. How do I manage my inventory, so I have cash available to invest and grow? Another potential issue is that the current situation may make inventory at EMS compa- nies worse in the short term. ey likely have a higher percentage of their bill of materials (BOMs) available to them as supply improves. In fact, many orders have required non-can- celable non-returnable (NCNR) contracts over the past few years so inventory will con- tinue to arrive at the EMS company whether they want them or not. Given an ongoing list of constrained manufacturers combined with ongoing volatility in "commitments," the risk of building up excess inventory remains high. Put another way, when perhaps 50% of the BOM cost was not available 12 months ago, they would have the other 50% in inventory. Now it may be "only" 5 or 10% of the BOM that is not available, but this means the EMS com- pany is likely forced to have the other 90-95% in inventory. In either case, the EMS company cannot ship products, but in the latter case, even more cash is consumed. Fortunately, there has been a growing num- ber of customers, especially those who truly understand the market issues and have strong partnerships with their EMS supply chain, A state-of-the-art semiconductor fab today represents a minimum $10 billion investment with three to four years to achieve full production. 2 3

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