Inventory Management & the Electronics Supply Chain w/ Zach Peterson

In this episode we are joined by not one, but two guests: Nora from Altium, who is today's guest co-host, and Zach Peterson, a technical consultant for Altium and the host of the "OnTrack Podcast." The trio delves into the ever-evolving world of supply chain processes, touching on the importance of preparation, flexibility, and being proactive in inventory management. They discuss trends like reshoring, emerging markets, and the impact of AI in the electronics industry.

Listen to the Podcast:

Watch this Episode:

Key Highlights:

• Intro
• What are Recent Supply Trends Zach's Noticed
• Flexibility & Inventory Management
• The End of the Just-in-Time Inventory Management
• Nearshoring & Reshoring
• Where Should Engineers Learn?
• AI & the Supply Chain
• Limitations Leading to Expansion

Links and Resources:

• Watch the recent episodes of Ctrl + Listen Podcast on the Octopart Youtube Channel
• Follow Octopart on LinkedIn
• Visit The Pulse, your one-stop resource for all things supply chain and electronics components
• Subscribe to Altium Academy Youtube Channel
• Read Zach's Articles on Altium Resource Hub
• Connect with Zach on LinkedIn
• Connect with James Sweetlove on LinkedIn

Transcript:

James Sweetlove:

Hey everyone. Thank you for tuning in. This is "The Control Listen Podcast" by Octopart. I'm the host, James Sweetlove. I'm joined today by not one, but two guests. First is Nora from Altium.She's gonna be my guest co-host today. Welcome to the show.

Nora Berman:

Thank youa, nice to be here.

James Sweetlove:

Great to have you. And our official guest today is Zach Peterson. He is a technical consultant for Altium and you may recognize him as the host of the "OnTrack Podcast." Thanks for coming on the show. Great to have you.

Zach Peterson:

Thank you very much. It's always nice to be in the guest seat sometimes.

James Sweetlove:

Yeah, it's a different experience, isn't it? I host podcasts so much and then I've been a guest in a few ones. It's different being on the answering side of the questions.

Zach Peterson:

Yeah, it's always nice though. I feel like the universe returns to balance when I get to do that.

James Sweetlove:

Yeah. So, obviously you've been doing podcasting in this sense for quite a while now. You're very well established. So, I have some questions. I'd love to ask about the industry, the broader industry, and some of those trends that we're seeing and experiencing there. First off, I'd like to know what are some of the recent trends that you've noticed in the supply chain process?

Zach Peterson:

It's always funny when people ask me that, because the answer depends on, whether stuff is hard to buy right now or stuff is easy to buy right now. When stuff is hard to buy, everyone complains a lot. So, I think complaining becomes one step in the process, when stuff is easy to buy, all of those processes that you developed when stuff was hard to buy kind of goes out the window, because the whole reason to develop the process when stuff was hard to buy was because it was hard to buy. And one thing I'm noticing is companies are having difficulty returning to that mindset that it's gonna come back around and go outta stock someday and they just don't plan ahead. It's also a little different. If you look at like prototyping, versus planning for production. The companies that are planning for production and they know they're gonna be producing something for the next three years, five years, however long or if you're like in the military space for the next decade or more, they really want to do their homework on the front end and make sure that the thing they're gonna put into that part or into that product is gonna be around for a long time.

So, first they need to make sure, like can we even hit our initial production run numbers? So, they really do their homework on inventory and supply chain, making sure they can source stuff. Then if you're going to produce over the long-term, if they're smart, they plan ahead. What are some substitutes we can use for some of these parts? And then they get really good at identifying parts that are really critical. So, like resistors, there's a million different resistors, right? If your one resistor goes outta stock, you'll find 10 others.

It's usually not a big issue. But for that one integrated circuit that really creates the core feature that people are actually purchasing, that's the thing that's really critical. And that's the thing you have to plan around. So, there kind of becomes these really important parts that everybody plans around and thinks about and make sure that they can purchase over the long-term. And that usually requires engaging directly with the manufacturer, whether it's a semiconductor manufacturer or connector manufacturer. In fact, connectors are kind of an interesting area, especially when you get into high reliability, because you need to make sure that you can procure that at the right scale. And you're generally going direct to the manufacturer.

You're gonna buy out the distributors inventory, before you even hit your numbers. So, you have to go over directly to the connector manufacturer to get your volume. So, it's interesting depending on what you're looking at. And then there's some specialty stuff or some specialty components that you might need to plan around that are just so new, they don't produce them in the volume you want them. Great example is in radar. Nora Berman:  So, what I'm hearing from you, Zach is that there's kind of an ideal philosophy in how you approach supply chain issues that revolves around flexibility, due to the fact that it's always fluctuating and that there's a lack of predictability. But what I'm curious is how exactly do you prepare in a way that's not wasteful, in a way where you're not buying too many components and just the right amount?

Zach Peterson:

I mean, isn't that the $64 million question? It's funny because you brought up the solution, right? You just buy a bunch of inventory and hold it and that was fine, I don't know, 20 years ago, maybe, back when I was still in high school, that worked fine. Now you can't really get away with that, because things are changing so quickly.

Especially if you work in the consumer space, your product might only have a lifetime or useful lifetime, let's say of a year or two, before it needs an update or before you have to just move on to something totally different in order to stay competitive. So, people started to really rely on just-in-time, so that they could get just what they needed for their run plus 20 or 30% as a buffer or whatever to hold them through. And that way they could at least, keep filling orders consistently and keep product on the shelf just the right amount. And we got really-

Nora Berman:

Yeah. No one likes to have too much inventory sitting. And you had indicated this idea of substitution.

Zach Peterson:

Right.

Nora Berman:

Like being flexible and knowing what to substitute. And would you say that's adding on to getting that right number is being flexible in that way?

Zach Peterson:

Yeah. So, the companies that I've worked with that are like at the enterprise level, not at startup or design bureau level but they're enterprise clients, right? They know what the like five parts are, that create the main features and functions that people pay all the money for. I call them the value creating parts. Those are the parts that create all of the value. So, they at least need to know what the substitutes are for those.

And if they have those in a list, then great. Sometimes what they need to dois have a variant of their design that works with one of those substitutes. So maybe they produce 500,000 of board A, 500,000 of board B, but they both do the exact same thing. It's just, they're just slightly different. So yeah, it's all about reacting these days, being able to react quickly and have those contingencies in place ready to go. That's how people can react to a situation where, oh my gosh some broker in China, just bought the last quarter million of this part that I need, which happens.

James Sweetlove:

So, do you kind of see this as the end of the just-in-time supply chain model? Is that no longer like something that's enough for a company to implement?

Zach Peterson:

Yeah, just-in-time, it's like investing. Investing in stocks is easy when stocks are always going up, right? So, just-in-time is easy when you have infinite inventory. So yeah, I think people at least need to have the mindset of we're in inventory surplus mode right now, that'll change and pretty soon we'll go back to something will be persistently out of stock and it'll be irritating for everybody.

James Sweetlove:

Right, there was something I actually wanted to ask on this sort of topic that we we hadn't mentioned before is how do you see the trend of nearshoring and reshoring sort of impacting this availability in the supply chain sector?

Zach Peterson:

Well, with reshoring it's really production capacity and I think it's based on an anticipation that just based over the past few decades, the usage of semiconductors and electronics components has just gone straight up, right? So, it's an effort to make sure that the new capacity that's around is not at risk, meaning geographically isolated in one corner of the world. So, I think in the future that will help with availability. I think it'll also help with logistics and especially as more emerging markets, get into the the electronics manufacturing game, they're gonna also need that supply as well.

And so to have all of that supply readily available at multiple locations around the world, will also help those countries get the parts that they need. Because some of those countries are also gonna be EMS services. So, they may also be producing for a client in Europe, a client in the US, a client in Japan, you name it.

James Sweetlove:

Right.

Zach Peterson:

So, you're really spreading that capacity and the inventory around by doing that. And I think that's what helps prevent the situation where oh no, Shenzhen's shut down, because of some government mandate, let's say. And now you can't get capacitors for the next three months. I'm being-

James Sweetlove:

Right, right.

Zach Peterson:

I'm exaggerating a little bit, but that's an actual problem.

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James Sweetlove:

Right and same with politics and you never know what's gonna happen between two countries diplomatically, which is the other issue we're having now with the trade war basically. So, all these components that we need that are no longer available, so gotta come from somewhere. I definitely see the expansion of Central and South America and Southeast Asia and South Asia as critical to the future of the industry.

Zach Peterson:

If I were a betting man, sometimes I am, I would bet on Mexico, being the next big electronics manufacturing hub.

James Sweetlove:

I see it as well.

Nora Berman:

Well, Zach, where do you recommend, since this is a industry where it's changing, it's fluctuating, you have to keep your ear to the ground. Where can engineers learn about components and how to stay current within the industry?

Zach Peterson:

Yes, so I mean, obviously Octopart is a great place, because they compile all of that data. Chances are if you're using another search engine, you're actually looking at Octopart search results. I don't normally say go to the semiconductor manufacturers but they do a pretty good job of, well, the bigger ones like Texas Instruments, they do a pretty good job of making sure their inventory is current and up to date and they can even give you access to additional stock that isn't necessarily listed on like their US site. I've actually had this happen, so a couple years ago I was working with an aerospace client and we needed to get this one microcontroller, because for whatever reason they weren't thinking ahead and they had designed this entire system, around this one microcontroller, well, there's 80 of them left in the world and we were able to get those last 80 out of Singapore from Texas Instruments. We didn't know those 80 existed, because it wasn't made publicly available on their US website. So, we had to actually go and contact Texas Instruments.

They said we do have 80 in this warehouse in Singapore and they managed to get it for us. So, sometimes you have to go direct to the manufacturer and build that relationship there. The search engines are great, but you gotta gotta do a little bit more. And that's especially important, once you go into volume, right? Because when you're going to volume production and you're gonna be getting monthly shipments from a semiconductor manufacturer, you're not getting those from DigiKey, right? DigiKey is the low to medium volume, but if you're producing 10,000 units a month, you're not getting that volume from DigiKey or if you do you're gonna exhaust it really quickly and then you're gonna have to go direct to the manufacturer.

Nora Berman:

Yeah, so it's finding kind of sustainable solutions for sourcing.

Zach Peterson:

Yeah, and the fact that a platform like Octopart and then the search engines that it also serves exist, it kind of creates this idea that those are the only places to get parts and they're the great starting point and they give you all the data and that's really important. But at some point when you go into production mode and you're going into volume, Octopart is kind of going to take a little bit of a backseat because the big component orders are gonna come direct from the manufacturer and at some point you might get into a pinch and then you need to start finding the brokers. You then need to start finding second sources. And so that's another instance where these search platforms really come in and become really helpful.

Nora Berman:

Yeah, are there any online communities or news sources that you look at and think are helpful?

Zach Peterson:

Gosh, being in this business, I feel like there isn't a news source I don't look at at some point. I mean, for new parts, I actually learn about them through targeted ads, I guess the electronics. NoraOh, wow ZachYeah, whoever's doing advertising, marketing in the electronic space is getting really good at it, because they always seem to hit me with that ad, right when I need it when I'm on, all about circuits or signal integrity journal or something. I'm on some website and then, I get the ad. So, I do see that, yeah. NoraWow, the algorithm's working for you.

Zach Peterson:

It's working okay, yeah. So, I at least know that these options are out there, so that's always nice.

James Sweetlove:

Speaking of staying current, obviously one of the big trends that everyone's talking about right now is AI. What is your view of its impact on the industry? I mean, obviously we have, there's gonna be a whole new stream of parts that are necessary to construct the equipment to operate AI. How do you think it's affecting the supply chain?

Zach Peterson:

Yeah, that's a great question. So, there's a couple different ways that I think it'll affect the supply chain. One of them is kind of broader beyond just parts. It's actually more manufacturing holistically. And that could drive part selection choices. So, AI as applied to quality, inspection, verification of a board as it comes off the assembly line. That's really important. And it could force a design team to do an update that requires them to get an alternative part for DFM DFA reasons for functionality reasons, for testing reasons.

So, having that closed feedback loop and being able to predict that both on the front end and then take all the data you get from testing inspection on the back end and then compile that and say, "Hey, design team, "80% chance that this is your reason "for your board failure. " That kind of information, that's I think a really important place where AI comes in. So yeah, that's kind of closing that loop, between manufacturing and design. Obviously logistics, I'm not a logistics person, but I mean, anytime you have large amounts of data and looking for trends, I can see AI playing a role. So, you should probably get some logistics folks on the podcast to talk about that. And then I think part selection, like maybe with a part selection co-pilot or something, that would be really interesting too, something to help you wade through the millions of different parts and maybe something that does a little better than just parametric search or something that can help you understand, your kind of general slightly vague requirements and then recommend, "Well here's what you should try searching for," that kind of thing. So, those are some opportunities where I think companies will develop, like some proprietary tools that will help their customers design more successfully and design more efficiently.

James Sweetlove:

Great, yeah, it definitely sounds like it's an exciting space to be operating anything in the next coming year or two.

Zach Peterson:

Yeah, I think the thing you have to be careful about with any new technology, 'cause we saw this kind of thing with blockchain is you get into the hype cycle and I think enough companies have looked at what happened in dot-com, they've looked at what happened with blockchain and they've said, "We don't need to be first, we just need to come correct. "

James Sweetlove:

Yes.

Zach Peterson:

So, I think companies like Altium or any of its competitors or even like the open source tools, they have the ability to implement some kind of AI thing in the software, but I think waiting and being a little patient is really the wise thing to do, especially if you want to make sure that your customers trust you when you start to introduce AI-related products into the market and into your software or into your web platform, wherever it is gonna exist.

James Sweetlove:

Right. Yeah, I definitely a hundred percent agree. I think one of the worst things that companies do sometimes is rush things out of production and then have to do a recall or they have to apologize constantly for design issues. I mean, it happens with everything from cars to video games. Yeah, just bugs that need to be worked out that should have been worked out before launch.

Zach Peterson:

Yeah, you never want your product to be known as like the buggy product, right? Or you never want your, you don't want to to rush to market with something and then people turn around and say, these guys don't know what they're doing. It's hard to earn that trust back.

James Sweetlove:

Yeah, exactly. I think reputational damage is not worth the risk of rolling something out earlier, making a few bucks.

Zach Peterson:

Exactly. Yeah, so take the Apple approach. Don't try and be first. Come correct.

James Sweetlove:

Definitely

Nora Berman:

Wise words.

Zach Peterson:

Yeah, well, I learned it from Josh Brown on CNBC, so that's where I learned it from, yeah.

James Sweetlove:

One of your many news sources. Nora, that was my last question. Did you have anything that you wanted ask?

Nora Berman:

Yeah, I guess I have a general question. With supply chain, there's this idea of, with a crisis comes great innovation, and I'm just wondering, if you have any personal stories or opinions on an instance where a limitation, actually led to an expansion in your design process or in what you've encountered in this industry?

Zach Peterson:

Yeah, actually, the COVID period was really a great time to fail and then learn from the mistakes and then figure out a way to be better. And that was where I really learned the value of understanding how to get in touch with someone at a semiconductor company and get yourself in a position to get consistent supply.

Nora Berman:

And you had not done that before?

Zach Peterson:

No, no. I guess there's kind of a mental block there, because I always thought myself as being kind of too insignificant to do that. But when you're working with a client that is going to take their product to 10,000 units a month or more, they need the supply. They're gonna buy out everything at all the distributors, just to hit one run in that case. So, I managed to figure out how to do that for them. And that was really a learning experience for me, because I had never done that before, but the folks at this one particular manufacturer, they were very good at guiding me through the process and kind of help helping me interface between the client and their team. And then we got all the contractual obligations set up with them and now they're off and running and it's kind of cool to see that happen. The other thing that it kind of reminded me of, which I guess I knew in the background, but I didn't put into practice. So, this is a process thing is, some parts come in a part number family, right?

And this goes back to the variance aspect, right? LM317 is not the only part number, right? There's all sorts of different variants of it that are all in many ways interchangeable. And the particular part I was working with was a bit more advanced. It was it's a network processor on a BGA but it comes from a part number family. And so you actually do have options, even though the thing you spec for yourself is not available. So, that actually gave us an opportunity to say, "Hey, let's build some prototypes "and let's swap out these different chips "into this prototype "and then see which one of these are gonna work. " And it actually helped us figure out a path to say, "Okay, we now have all of these different options "and that really let us qualify the variance "in the process. "

Nora Berman:

Wow.

James Sweetlove:

Yeah, fantastic.

Nora Berman:

So, yeah, it almost created a new context in which to communicate with the manufacturers if I'm hearing you correctly.

Zach Peterson:

Yeah, yeah. And I think if you're like, I think if you're an independent designer or maybe you it's just you and a couple contractors at a company and you are working with a much larger company that might need to go into those kinds of volumes, it's a real confidence boost for you. Now you know how to deal with that kind of thing and that's more value that you can give to other people. And that's really important. It's especially important for people who are individual designers or small teams, because they need to figure out ways that they can be competitive with some of these bigger design firms. And there's not very many of those big design and engineering firms. But if you can operate on that level, then you can win that business.

James Sweetlove:

Yeah, fantastic. Well Zach, thank you so much for coming on the show. It was really fascinating talking to you. You obviously have a lot of insight. If people want to access more of that insight, like for the through the podcast or your writing where should they find that? What's the best place to do that?

Zach Peterson:

Yeah, of course, resources. altium. com, the Altium Academy YouTube channel. Or you can find me on LinkedIn and send me a message. I get tons of messages every day, so I do my best to respond to all of them. Sometimes they fall through the cracks, but just keep poking me on LinkedIn.

James Sweetlove:

Fantastic. And Nora, thank you.

Nora Berman:

Thanks so much James.

James Sweetlove:

Thank you for coming on the show Nora. It's great having me as a co-host today.

Nora Berman:

Yeah, it was great. I've learned so much, I have a lot to think about.

James Sweetlove:

Yeah, same here. Thank you.

Zach Peterson:

Awesome, thanks guys.