How the Golden Screw is Changing Purchasing Behavior

The procurement of components has been very rocky in the past two years. These recent experiences will have a lasting impact on the purchasing behavior in the industry.

How the Golden Screw is Changing Purchasing Behavior
Don't let missing components disrupt your manufacturing lines

The procurement of components has been very rocky in the past two years. Shortages disrupted manufacturing lines often because just one small component was missing. Such "golden screws" literally have been a gold mine for brokers.

However, semiconductor manufacturers have ramped up capacity and foundries are shifting their focus to areas where bottlenecks still exist. In the long term, the situation will ease again. However, governments and companies have learned their lessons and the experiences of the past years will have a lasting impact on the purchasing behavior in the industry.

1.      Semiconductors are a priority: The manufacturing of chips becomes global again. Qimonda is a good example of one of the last remaining German semiconductor companies that didn’t survive the last economic crisis. With Intel and TSMC, two of the largest semiconductor manufacturers in the world are now planning to set up plants in Germany again.

We see a similar trend worldwide. And even if not all plants that are currently being planned are actually built, this still shows the relevance that semiconductor technology has gained since 2008.

2.      Price is no longer everything: The situation will improve significantly for buyers, but the price will no longer be the most important criterion. Industrial customers can plan much better than manufacturers of consumer electronics and can secure their demand through long-term agreements with distributors at a fixed price that is beneficial for both parties. Especially when it comes to high-quality products, manufacturers cannot afford to end up empty-handed – or even worse - to fall for fake products from gray markets once the next shortage hits.

3.      Beware of oversupply: Just because the prices of memory chips are currently falling dramatically and there is talk of a massive surplus, it doesn't mean that this affects all memory chips and even less all semiconductors. There are still components that can have delivery times of up to six months. You still need to take a closer look and plan ahead for all components, especially the ones that have no or few alternatives.

4.      Geopolitics remains: Geopolitics will continue to impact the already complex procurement landscape, and companies must adapt to another volatile economic environment. It makes sense to diversify supply from different regions and also to take into account the proximity to your own production plants, but a complete de-coupling won’t be an option. First, it would make products very expensive and slow down progress. Second, it will impact the speed of innovation. Collaboration is particularly high in the semiconductor industry where developments are shared so that progress can be made more quickly. If we create silos, we stall important innovation momentum.

5.      Nothing is more constant than change: Natural disasters, terrorist or cyber-attacks, pandemics and war - in recent months and years, companies have had to deal with new, unforeseen events. This state of uncertainty will remain, and companies must learn to live with the unknown in order to survive.

This may sound gloomy, but despite all these developments or maybe even because of them, advances strive in areas such as electromobility, autonomous driving, the Internet of Things, artificial intelligence and Industry 4.0. It’s exciting times and it’s never been clearer that the semiconductor industry plays a central role in the evolution of the global economy.

Author: Marco Mezger, President and COO of specialty memory distributor MEMPHIS Electronic and Neumonda