The Cost of Overreaction: How Misguided Orders Disrupt the Semiconductor Market

The semiconductor industry is projected to reach USD 697 billion by 2025 and could exceed USD 1 trillion by the end of the decade, fueled by growth in generative AI, EVs, 5G, and connected devices. But behind the strong growth outlook is a supply chain challenge rooted in the recent global chip shortage: overordering.

From 2020 to 2023, long lead times and supply uncertainty led many companies to place duplicate orders with multiple suppliers to secure parts. This created artificial demand signals, inflated forecasts, and ultimately excess inventory. Suppliers describe the result as a "rollercoaster of demand," with sharp spikes and drops disrupting capacity, delaying product launches, and eroding trust.

This article examines the impact of overordering on semiconductor sourcing and outlines how data-driven decision-making can help supply chain teams reduce risk, improve forecast accuracy, and respond more effectively to market changes.

What Happened During the Chip Shortage?

The 2020–2023 semiconductor shortage was the result of multiple disruptions converging at once. COVID-19 halted production and shipping, while demand for consumer electronics surged as remote work became the norm. Automotive and EV manufacturers also increased chip requirements, adding pressure to already limited capacity. Geopolitical tensions, especially between the U.S. and China, further complicated supply chains through export controls, trade restrictions, and material shortages, including silicon wafers and neon gas.

To cope, many OEMs and EMS providers placed duplicate orders with multiple suppliers to secure parts. This "phantom demand" distorted market signals, driving foundries to boost production and distributors to allocate aggressively. Prices spiked, lead times stretched, and in some cases, companies ordered three to five times their actual needs.

While this tactic offered short-term protection, it left many with excess inventory, misused resources, and damaged supplier relationships once demand normalized. The industry is now recalibrating to correct these imbalances and stabilize the supply chain.

The Fallout: Inventory Gluts and Market Instability

As global supply chains began to stabilize in the latter half of 2023, many companies found themselves facing an unexpected and costly consequence of their earlier procurement strategies: massive inventory surpluses. Components that had once been in critically short supply, such as microcontrollers (MCUs), power management integrated circuits (ICs), and various types of memory chips, were now sitting idle in warehouses, often in quantities far exceeding actual demand.

Our conversations with vendors have revealed a troubling picture. Warehouses are overflowing with unused parts, many of which are approaching their end-of-life (EOL) status or have already been rendered obsolete by newer, more efficient technologies. These components, once considered essential and urgently needed, are now liabilities, tying up capital, occupying valuable storage space, and complicating production planning.

This surplus has triggered a cascade of challenges across the industry:

• Price Volatility: As demand softens and supply outpaces consumption, prices for many components have plummeted. This sudden drop erodes profit margins and creates uncertainty for both buyers and sellers, making it difficult to forecast costs and plan budgets effectively.
• Waste and Write-Offs: Unused inventory often ends up being scrapped or sold at steep discounts, resulting in significant financial losses. In some cases, companies are forced to write off millions in unused stock, impacting their bottom line and shareholder confidence.
• Production Delays: Ironically, having too much of the wrong inventory can slow down production. Excess stock ties up working capital and clogs inventory systems, delaying the introduction of new products, and reducing operational agility.
• Supplier Distrust: Distributors and manufacturers are increasingly wary of inflated forecasts. Many have become cautious in their allocations, hesitant to commit resources to customers whose demand signals have proven unreliable in the past.

When we speak with suppliers, one message comes through loud and clear: the need for accurate, consistent demand signals is more critical than ever. As one distributor candidly put it, "We can’t plan capacity if customers keep changing their minds." This sentiment underscores the importance of transparency and collaboration in rebuilding trust and restoring balance to the semiconductor supply chain.

Why Overordering Happens And How to Prevent It

Understanding the root causes of overordering is essential to preventing it in future cycles. While the behaviour may seem irrational in hindsight, it often stems from very real pressures and constraints that teams face during times of uncertainty. Here are three key drivers and how organizations can address them:

1. Fear of Missing Out (FOMO)

During periods of shortage, the fear of being left behind can drive teams to make hasty decisions. The anxiety of missing a production deadline or losing market share leads to panic buying, even when actual demand is unclear or fluctuating. This reactive mindset often results in inflated orders that do not reflect true needs.

We have found that fostering clear, consistent communication between design, sourcing, and manufacturing teams can significantly reduce this fear. When all stakeholders have a shared understanding of project timelines, volume requirements, and risk tolerance, sourcing decisions become more measured and strategic. Cross-functional alignment helps teams resist the urge to overcompensate and instead focus on what is absolutely necessary.

2. Lack of Visibility

In many organizations, sourcing teams operate with limited visibility into up-to-date component availability, lead times, and lifecycle status. Without access to accurate data, decisions are often based on guesswork or overly conservative assumptions, leading to excessive ordering as a form of insurance.

Altium’s solutions are designed to address this challenge head-on. By integrating the latest distributor data directly into the design environment, engineers and sourcing professionals gain immediate access to:

• Up-to-date stock levels across global regions
• Up-to-date lead times and pricing information
• Lifecycle status indicators (e.g., active, NRND, obsolete)

This level of transparency empowers teams to make informed, confident decisions. Instead of ordering "just in case," they can plan based on actual conditions - reducing waste and improving responsiveness.

3. Fragmented Communication

In large, distributed organizations, sourcing decisions are often made in silos. One team may place an order without knowing that another team, possibly in a different region or business unit, has already secured the same components. This lack of coordination leads to duplicate orders, inflated demand signals, and unnecessary inventory buildup.

We have seen this scenario play out frequently in multi-site operations, where disconnected systems and workflows hinder collaboration. Digital BOM tools, like those offered by Altium, help centralize sourcing data, enabling teams to share information, track orders, and avoid duplication. By creating a single source of truth for component sourcing, organizations can streamline procurement and ensure that every order is aligned with actual needs.

Actionable Strategies to Avoid Overreaction

Avoiding overreaction in semiconductor sourcing requires proactive, strategic approaches that integrate technology, communication, and discipline. Here are five proven strategies that teams can implement to reduce risk, improve accuracy, and build resilience into their sourcing processes.

1. Use Up-To-Date Component Intelligence

Designing with availability in mind is one of the most effective ways to prevent sourcing issues before they arise. In Altium, engineers can filter components based on the latest data, including:

• In-stock status across multiple distributors
• Preferred supplier listings to ensure reliability
• Lifecycle stability to avoid obsolete or NRND parts

By embedding this intelligence directly into the design workflow, teams can make smarter choices from the outset. We have observed that organizations using this approach reduce sourcing errors by up to 40%, significantly lowering the risk of last-minute substitutions and costly redesigns.

Smart design leads to smart sourcing. Equip your engineers with the right data at the right time.

2. Implement Demand Forecast Discipline

Forecasting in the semiconductor space is notoriously difficult, especially in volatile markets. However, disciplined forecasting, even when uncertainty is high, provides a foundation for better supplier planning and trust.

Our vendor partners consistently emphasize the value of transparency. One distributor told us, "We’d rather see a realistic number than a hopeful one." Inflated forecasts may seem strategic, but they often backfire, leading to misallocation and strained relationships.

To improve forecasting discipline:

• Use rolling forecasts that adjust monthly
• Share updates with key suppliers regularly
• Align internal teams on forecast assumptions and changes

This approach builds credibility and helps suppliers allocate resources more effectively.

Forecast with honesty, not optimism. Realistic numbers build real trust.

3. Centralize BOM Management

Duplicate orders are a common symptom of fragmented sourcing processes. When teams operate in silos, especially across multiple sites or departments, it is easy to lose track of who ordered what and when.

Centralizing BOM management solves this problem. In Altium, BOMs are version-controlled and accessible to design, sourcing, and manufacturing teams. This ensures that everyone is working from the same source of truth.

Organizations that adopt centralized BOM tools have reported up to a 30% reduction in component redundancy, leading to leaner inventories and more efficient procurement cycles.

One BOM, one truth. Centralization eliminates confusion and duplication.

4. Monitor Lifecycle and Compliance

Overordering often results in stockpiling components that are either nearing end-of-life or no longer compliant with regulatory standards. This creates risk not only in terms of wasted inventory but also in potential product delays or recalls.

Altium’s tools help mitigate this by providing up-to-date tracking of:

• Lifecycle status (e.g., active, NRND, EOL)
• Compliance data for RoHS, REACH, and other standards

This visibility allows teams to make informed decisions and avoid sourcing parts that may become unusable or non-compliant.

Do not stock what you cannot ship. Lifecycle and compliance data are essential safeguards.

5. Build Strategic Supplier Relationships

In times of shortage, supplier relationships can make or break your sourcing strategy. Teams that treat suppliers as strategic partners rather than transactional vendors tend to receive better support, faster responses, and more flexible allocations.

Suppliers consistently tell us, "We prioritize customers who help us plan." That means sharing forecasts, explaining sourcing logic, and being transparent about changes in demand.

Building trust takes time, but the payoff is significant. Strategic relationships lead to better collaboration, more accurate allocations, and stronger resilience during market disruptions.

Trust is the best currency in a shortage. Invest in supplier relationships early and often.

The Role of Altium’s Solutions in Smarter Sourcing

Altium’s suite of tools is purpose-built to help teams avoid the pitfalls of overreaction and build smarter, more resilient sourcing strategies. Key capabilities include:

• The latest distributor data: Yp-to-date insights into stock levels, pricing, and lead times
• Lifecycle intelligence: Alerts for EOL and NRND components
• Digital BOM tools: Version control, collaboration, and sourcing integration
• Design-to-procurement workflows: Seamless handoff from engineering to sourcing.

Teams using Altium have reported fewer sourcing errors, reduced excess inventory, and stronger supplier relationships, all of which contribute to a more agile and efficient supply chain.

Future Trends: Toward Predictive and Resilient Sourcing

Looking ahead, the semiconductor industry is embracing new technologies and strategies to make sourcing more predictive, sustainable, and regionally diversified.

1. AI-Powered Demand Forecasting

Artificial intelligence is beginning to transform how teams forecast demand. Emerging platforms are offering:

• Predictive lead time modelling based on historical and real-time data
• Component risk scoring to flag potential disruptions
• Automated forecast adjustments based on market signals

2. Sustainability-Driven Procurement

Environmental responsibility is becoming a core priority in sourcing decisions. More companies are choosing components that align with sustainability goals, including:

• RoHS and REACH compliance
• Use of recycled or low-impact materials
• Energy-efficient designs and packaging

3. Regional Sourcing Strategies

Geopolitical risks and supply chain disruptions have prompted companies to diversify sourcing across regions. By balancing local and global suppliers, organizations can improve resilience and reduce exposure to single points of failure. Filter suppliers by geography, risk profile, and compliance to build a more robust and flexible sourcing network.

Conclusion

Data-driven sourcing, transparent communication, and strategic planning can transform reactive behaviours into proactive strategies. With the right tools and mindset, teams can move confidently from panic to precision, building supply chains that are not only smarter but also more sustainable and resilient.