Jul 26, 2021 3:34:19 PM | 6 Min Read

How Supply Chain Disruptions are Affecting Cost of Materials and Component Lead Times

Posted By
Will Rogers
How Supply Chain Disruptions are Affecting Cost of Materials and Component Lead Times

Widespread supply chain issues have plagued the manufacturing industry throughout the past year, including materials and component shortages, shipping delays, longer lead times, and rising freight and materials costs.

Even though pandemic-related shutdowns and constraints are easing, issues related to supply chain disruptions are expected to continue through 2021. If you are in the market for enclosure design or other IT hardware solutions, these concerns will impact you. Let’s take a closer look at the causes and consequences of these issues.

Supply Chain Disruptions 

The production uncertainty that began in 2020 has carried over into 2021, and the pandemic continues to be the primary concern of supply chain managers and procurement specialists alike. During the height of the pandemic, manufacturing slowed down, stopping altogether at various points. This resulted in materials and component shortages as well as steadily increasing costs.

In addition, lockdowns in major metal resource countries, as well as tariffs and duties that were put in place last year, have further constrained supply options. Not to mention the ongoing logistics constraints haunting the industry worldwide.

These issues will ease gradually (and some already have), but experts say it could be the end of the year before we see a return to some sense of normalcy.

The impact the pandemic will continue to have this year remains difficult to predict, but we expect to see much of the same through the end of the year: frequently changing lead times, price increases, and materials shortages.

Raw Material Shortages

Increasing global demand for various components has led to shortages and extended lead times from overseas suppliers. With consumers spending more time at home last year and increasing their electronics purchases (smartphones, computers, TVs, gaming systems, and more), demand for consumer electronics increased significantly. This created an unexpected surge in production demand that foundries and chip assemblers couldn’t keep up with, and resulted in bottlenecked production not only for consumer electronics, but for all products requiring electronic components (even the auto industry has been hit hard).

Shortages of various raw materials, including steel, aluminum, other metals, and resins, and components such as semiconductors, are expected to continue through 2021.

Increasing Materials and Component Costs

Materials costs increased dramatically in the fourth quarter of 2020, and have continued to rise steadily since. The price increase of copper and other metals has led to increased costs for electromechanical devices and passive components:

  • Copper prices reached a nine-year high earlier this year and are continuing to rise
  • Steel prices have increased rapidly as well, with inventory levels remaining low
  • PVC is at its highest price in more than a decade
  • Electrical parts are up 15-20%, including MOSFET, resistors, transistors, diodes, and more
  • DC cables, wire harnesses, and power cords are up 8-10%
  • Both metal and plastic case materials are up 8-10%
  • Memory and systems chips are expected to see their biggest increases yet this year

Even the cost of packing material has risen 10-15%! And prices are expected to continue rising throughout the year.

The main drivers of price increases in 2021 are the pandemic, rising prices for copper and other metals, and potential shortages of multilayer ceramic capacitors, power MOSFETs, semiconductors, and more. 

Many suppliers chose to hold off on price increases in 2020 due to the pandemic. But this year we can expect to see prices rising to align with the cost increases suppliers have experienced over the past 15 months. As material suppliers struggle to meet demand, we will see more aggressive commercial terms and price increases to obtain necessary materials.

Expanding Lead Times 

Components are being held up in transit due to increasing e-commerce, buying surges, and lower than normal staffing. Plus, a worldwide shortage of 40-ft cargo shipping containers has arisen due to the rapid increase in demand. Port traffic has become an issue as well, with ports on both U.S. coasts experiencing long lines of anchored cargo ships waiting to unload.

Due to all of this and more, freight rates have skyrocketed over the last 15 months, and lead times have become increasingly unpredictable. Items that routinely ship within a week now have lead times of 10- to 12-weeks, or even more in some instances.

What This Means For Your SySTIUM® Orders

Every part of the industry has been affected by these issues, andSySTIUM® is no exception. Shortages and extended lead times impact productsSySTIUM® procures, such as fans, cable assemblies, and power supplies. 

To best meet demand, we rely on our customers to provide us with up-to-date forecasts and orders. We are proactively procuring materials using historical data to help meet demand, but this process does not replace forecasts, orders, and further up-to-date information. 

Any detail you may be able to provide regarding product demand is appreciated, and we ask that you reach out to us for updated lead times so we can work on scheduling and order acknowledgements.

In 2020, we did not pass along to our customers any costs associated with air freight charges from overseas shipments. This year, any costs borne by customer expedite requests to reduce lead times by incurring air freight charges will be passed along through an expedite charge.

In addition, SySTIUM® is implementing several operational mechanisms aimed at minimizing cost mitigation, but even so, we are unable to offset such significant cost increases from multiple component vendors and industries. Our prices may increase during 2021 — we are still reviewing prior to setting an effective due date. As always, we will continue to make efforts on cost optimization. We thank you for your patience and understanding as we continue to navigate this unpredictable time.

While the materials, lead times, and other factors involved in creating SySTIUM®’s products can sometimes be at the mercy of a fluctuating market, one thing will always remain the same: our unwavering commitment to creating a high-quality product and to providing our customers with the best service possible.

Whether you need enclosure design, quick turn prototypes, or one of our other solutions, you can always count on SySTIUM® to deliver quality. Contact us today to discuss how we can help take your concept from idea to finished product.

Topics: Supply Chain, Product Design

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