Supply Chain Insights from IHS Markit - AltiumLive 2022

Paul Ratner
|  Created: February 3, 2022  |  Updated: February 26, 2022

Paul will discuss lead time trends by commodities, manufacturer obsolescence trends and will address questions on IHS data available in the Altium tools.

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Transcript:

Paul Ratner:
Hello, AltiumLive attendees. My name is Paul Ratner. I'm senior account executive here at IHS Market. Coming to you from my home office, near the IHS North American headquarters here in Englewood, Colorado. Today, I'll be sharing some of our electronic component supply chain trends, information and insights for 2022, with some tips on how to survive the challenges ahead in 2022 and beyond. I've been working in the electronics industry since 1985, back before the internet, when the first Apple and IBM personal computers were just being introduced. And back then, all we had were hard copy data sheets, product catalogs, and manual processes. Over the last 36 years, I've worked in every facet of the electronic industry, including many years at semiconductor passive and electromechanical component manufacturers. I've worked in contract manufacturing and also at some of the top 10 component distributors. I've been with IHS for over eight years, specializing in working with all of these electronic industry leaders, OEMs and EMS companies, supporting them with electronic component life cycle management web tools, and component data.

So the topics I'll be covering today, we'll cover some historical data on electronic commodities supply chain and IHS's general global predictions for 2022. I've also... be going over metrics on how customers are dealing with their supply chain issues and suggestions on what could be done to keep those production lines running during this shortage cycle. Last, I'll share some best practices our customers use to be proactive when it comes to new product introductions and supporting legacy builds and products. For those of you that are not familiar with IHS Market, we are a large publicly traded information company. And our expertise is gathering and managing large amounts of data, then delivering easy to use tools and analytic reports that companies use to make decisions. We leverage technology and data science to provide insights, software, and data to help our clients make informed decisions, driving growth, performance, and efficiency.

We were founded in 1959 and IHS grew to be the world's largest supplier of microfilm for industries worldwide back in those days. As companies data's needs had changed, I just then evolved into a digital media provider, migrating to floppy discs, CD-ROMs, DVDs, and then finally, to cloud-based data servers. Through multiple acquisitions, IHS became the recognized data management leader in major industry sectors. And we have dedicated company divisions supporting each of these industries, which you'll see in the circles on the slide here. So we actually have individual divisions that handle maritime and trade, shipping, all the ships at sea, what they have onboard. We also do all the major oil companies and what holes they've drilled, where they've drilled those holes, how deep they are, what they produce. We also have a huge financial services arm that supplies all sorts of data to financial service companies, as well as automotive information. We actually own the company CARFAX, which has all the automotive detail for all the cars on the road today.

So we have this data from all different sources and then we compile it into easy to use reports and analytics. I work in the engineering and product design divisions, specifically supporting electronic components part information. And we are again, 15,000 employees strong, 4.3 billion in revenue. We have over 50,000 customers worldwide. And we deal with the largest companies in the Fortune 500, both locally and globally. And in Q1 of 2022, we will be finalizing our merger with S&P Global. These are the same guys that do the S&P 500. So we will be a much larger company here in the next few months, which will further expand our capabilities and resources. A few years ago, Altium wanted to expand their electronic parts content and partnered with IHS to add some of our data elements from the IHS one billion part number database to their Pro level design tools.

Our database contains current and historical electronic components that are commonly used on printed circuit boards and electronic related product builds. These components include semiconductors, passive electromechanical connectors, and other miscellaneous items related to electronic assemblies. Our database continues to grow, and we're adding hundreds of thousands of parts per month to the database. Our 300 data engineers include degreed engineers, who vet the data and create IHS proprietary content, which includes compliance information status, and cross references. IHS is an unbiased source of electronics data, as we do not sell components or promote any specific manufacturers. The electronics data from IHS is currently available in Altium tools, in the Pro level tools that they provide. So if you want access to the IHS data, you just need to contact your Altium provider.

So some of the things going on in the marketplace right now, we actually have over 5,000 data analysts at IHS that cover all the various customer sectors we support as the largest global companies and financial institutions rely on our global business updates to make their decisions. Here's the latest global predictions from our top analysts on what to expect in 2022. Of course, number one there, again, COVID continues to be the wild card. All we really know is it's not going away and companies worldwide are doing their best to find ways to adapt to keep businesses running. Number two, actually this across all types of products, but matches what we're hearing in the electronics industry. Tight supply will continue and the only good news being that pricing should continue to level off over the year. Money is tight out there. The central banks are going to be watching out as this evolves. And then there's all sorts of other things that are going on with the pandemic driven marketplace that are going to be concerning.

As far as the electronic supply chain goes, I think number 10 is another area of concern. Areas that companies can start actually focusing on early in 2022 is to be proactive to when it comes to avoiding geographic areas of uncertainty. And as the world continues to watch as things unfold in China and Taiwan and Russia and Ukraine conflicts, these are areas where, especially with China and Taiwan, that this could be the next big event driving supply chain issues, because this relationship and the problems between those two countries actually could go far beyond tariffs. So we would suggest that that's an area that companies can be proactive in 2022, to try to get ahead of it by trying to avoid those areas, or at least be prepared for when that escalates. If you want to read the full press releases on these global business predictions, you can find this information by going to Google, because we have released press releases with this information. Or you could go to the IHS Market website.

In 2020, IHS's electronic components tool customers started asking us for more information on supply chain details. So we started looking at the historical stock feeds we get from top distributors and manufacturers, and began tracking lead time and price changes on commodities. And at the... It's on commodities and at the part level, which is what created these graphs. The electronic industry has historically had many cycles of lead time ramp up short supply, then manufacturers allocations, and eventually over supply. Over the last few years, it was chip capacitors. And before that, DRAMs were in short supply. So it's always some commodity that we're chasing, where lead times are escalating and then companies need to buy and shore up their production cycles. This short cycle's much different. We've never seen lead times and shortages escalate across all commodities at once the way they show here and we've seen historically.

In 2020, the virus was just ramping up in China. And as the lockdowns began, there was a huge rush by manufacturers to cut production on both the components and for OEM and products that they make. As orders were canceled and builds pushed out... this all happened again in 2020 and going into 2021. Another area was the auto industry slowed production in 2020 as economic uncertainty led consumers to avoid large purchases and remote work reduced the need for new vehicles. Since everyone was moving to remote work, the home computer products and consumer electronics demand skyrocketed. So when the vaccines rolled out and people started to venture out again, the auto industry saw pent up demand return quickly and started placing orders again for components. But now, their orders were stuck waiting for the tech companies orders to be fulfilled first. So the Samsungs, the Apples, again, all the component manufacturers, these consumer electronic companies were actually in full production trying to keep up with demand on their side. So that's one of the reasons why the automotive shortages are happening now, is because they had to wait for production availability from the manufacturers.

So with both these industries fighting for production, there's no capacity left to fulfill all the orders from other companies as they ramped up coming out of the pandemic, at least the first round of the pandemic. So lead times escalated quickly once the stock on hand was all consumed in early 2021. So here's where we've been over the past year, the big headache for companies now is the lead times continue to keep gradually ramping up each month. And all indications are these long lead times will continue through 2022. The normal electronic industry allocation cycles, companies would see ramp ups and quickly clean off the shelves. Then they would place multiple orders with various suppliers. Then once the first orders were received from those suppliers, they would cancel the additional orders. This would lead to a sharp drop-in lead times, oversupply from the manufacturer, and then eventually reduce pricing as manufacturers and distributors needed to sell off the excess inventory.

So when you triple order, only one of those orders is what they really needed, that leads to this additional inventory. So that would always drive the lead times and pricing back down quick. The manufacturers of course have learned through these cycles and over the years, they're now being more cautious in building and releasing inventory. As keeping supply chain tight, they can maximize price points and avoid the oversupply price discounting phase. So with COVID, this has really drew driven the manufacturers to be a lot more cautious when taking orders and fulfilling those orders. So just in time, manufacturing doesn't really work anymore in this shortage environment. So the OEMs and EMS companies are taking large orders at once in order to weather the storm and sitting on that inventory. So basically, this is just like we all did when we found toilet paper at the store, you always grabbed as much as you possibly could, not knowing when the next supply would be. So this general hoarding of inventory also is driving the lead times up.

The big picture is helpful, of course, on all the commodities we listed there, but I'm sure each of you have run into a small number of parts that are putting your production line at risk last year. And in this example, I pulled from the IHS intelligence tools, now you could see that the initial COVID shutdown spike, and then the existent inventory ran dry. So you could see where it actually spikes up here in October, and then as you see it, the inventory as it starts to become in short supply, then June, summer, that's when you're seeing the maximum lead times spike. And now, we're hoping they come down at some point. But for right now, that's going to drive a lot of the price point as well. You'll see that here, if you look at the total inventory. And again, this is coming from the IHS intelligence tools, you could see by part number that there was plenty of inventory, of course, going through 2020, even during the ramp up of the pandemic.

But as those lead times grew in the second quarter of 2021, you could see that the inventory kept going down. And then finally, it dropped out in June, at which point the inventory ran dry. Everybody was dealing with lead time. So then there was a price spike, so that sharp decline in inventory drove customers to, again, try to buy as much of that inventory that was left on the shelf at top dollar, which drove this temporary spike in pricing. So again, once we're up at 30 weeks now, the prices dropped back down because that price couldn't be sustained because it was just for the inventory on the shelves. So now things are leveling off at 30 weeks in lead time, but you could see that the price points are actually almost back to a normal level, as there's no reason to buy that inventory that's on the shelf at the higher dollar price.

So with passives, it was a little bit different story. So passive lead times inventory fared a little bit better, as the previous year, the MLCC shortages on capacitors had already pushed lead times higher on that product anyways. Surprisingly here, you'll see in the graph, that resistors, which are usually a commodity item, actually increased the most in lead time. And they are trying to trend down at this point. But even then, you had 25 to 30 weeks on resistors, which again are just major parts of any PCB build, but are usually a commodity item, are in trouble as well. Thankfully, resistors and capacitors tend to have multiple drop-in replacement parts and more options if different tolerances and voltages fit in the circuit. But passive components also take up the majority of positions on most PCB assemblies, so it's also a critical item when you can't get one of these passive products.

It could drive production line stoppage even faster than some of the other commodity products. Because with the passive products, you don't want to try to place 20 or 30 or 50 capacitors by hand after a build has gone through. So you really do need the automation to place a lot of those type of products. So a supply chain survey that came out recently, it's going to show that you're not alone with your pain, with these current supply chain problems. Jabil did a survey of 700 supply chain decision makers and here's some of what those people said. 62% of course, experienced production delivery delays due to the pandemic. So that actually seems a little low, but still, that's a big chunk of the marketplace that is suffering right now. And again, 90% of these decision makers have always known that they should be diversifying their supply chain and adding additional sources, but the pandemic only opened their eyes to the fact that this is a critical need to make sure you have a diversified supply chain.

94% surveyed, they care about the supply chain resilience and building that, but only two thirds adequately funded to build that culture in their company. So clearly, they are cause of their own headaches here by not actually being proactive about supply chain resilience. And then 90% of the survey participants agreed that investment will help the company recover from this. So they do realize that even though they didn't plan ahead, now they're willing to spend some of the dollars needed to make a difference in the supply chain. And only 31% of companies had developed alternate sources of supply. So that's again, causing their own problems when you're not going out and multi-sourcing individual components to avoid the situation that you're in right now, which is sole source components that you can't get because of long lead times. And nearly 100% in this survey responded that they are investing in technologies now to address this. So if you don't have tools, now would be the time to actually invest and go get them in order to dodge some of the problems you're going to have.

So some of the ways to get supply chain diversity, again, everybody wants it, but it does take hard work to get there. One of the ways to do that is to look for qualifying alternate manufacturers using cross references. You could also expand your geographic diversity by looking at country of origin on parts. So if you know a component is coming from a region that may be expecting upheaval or has problems with your economy, or even has labor problems or political problems, you could steer clear of those countries as soon as possible, and be proactive about that. Investing in new supply chain technologies, there is software out there. IHS has some of that. There's web tools. There's API data you could feed into your systems that could enhance the information you're getting and help you drive through these issues that you're having right now with multiple sourcing or even just managing to make sure that you're not designing in products that are going to cause you problems down the road.

You should also develop a supply chain resiliency strategy. So you want to set up preferred vendors, use authorized distributors and schedule orders where possible to make sure that you're going to be able to weather these storms. Because this is just one of them, and I guarantee there's going to be more down the road as things continue to evolve with the pandemic, but also with the next shortage market. You can improve your cross-divisional collaboration, part standardization between groups and across assemblies. This is something that customers came to IHS for also this last year, is there's many different OEMs that have multiple divisions, multiple programs, multiple products, and multiple board builds. And a lot of times, these divisions don't talk to each other.

So what happens is you'll have one engineer designing a chip capacitor for a board that works on one program. And then in another division, there's a component engineer designing and using a different chip. It might be the same parameters as that original capacitor that the previous engineer was using, but he selected a different manufacturer. Maybe the first engineer used AVX and this engineer used KEMET, but they actually set up two individual internal part numbers in their system. So now you have an OEM with a system with two separate internal part numbers for basically the same part. It has the same electrical parameters. It has the same footprint. So what you can do is look across all these building materials within all these different company products and look for similarities, look for parts that cross to each other.

And then look to standardize around one product, so that way you could buy all the AVX products that support multiple programs. And that way you can tap into other programs, when you run into supply chain issues, you might be able to go to other programs within your own company and pull some of their product that they bought for their program over to your product in order to keep both lines running. This could also be very helpful for excess inventory if you have it at the OEM level or the EMS level. You could look across that inventory that you own or they own, to see if there is a similar part that you could use in your assembly. So the parts that you might be struggling to get right now might be on the shelf in another one of your OEM divisions and just sitting there gathering desks when you critically need them. So being able to standardize around parts and look across this, there are tools out there that could help you do this.

Engaging predictive supply chain management. This is also very important, is to be proactive on lifecycle status and change notice monitoring. So in the tools you have or tools you can get, there is ways to upload large lists of parts and get alerts on those parts in order to stay proactive. So you could get an email alert anytime the status of the part changes from active to discontinued, or active to not recommended for new design. There are multiple ways that you could actually get that information fed to you, so that you could have a proactive stance versus just relying on notices to come across, hoping that you're going to catch all of them.

Some of the examples of alternates and cross referencing that could help you out through this tough time would be to look at... in this particular case, you've got capacitor A on the very far left side. And the differences between these parts are merely packaging method. So they're different part numbers, but you need to be able to recognize that this is a 13 inch reel. You could use the seven inch reel. You might be able to use the different finishes. So the first part on the left hand side is a gold finish, you'll see at the very bottom there. Can you used the tin lead finish or the matte tin? These are areas that you might be able to go back and forth with. Or if your original part was the second column, you could always go to the gold plated product versus the tin product, as long as that will work for you.

So there is different ways to look for cross-references, where it could just be some part level difference where it's just a character or two within the part number, but it can actually be relatively easy to find inventory if you look at some of these other options. Some other places you could go to look, which are very helpful, the component manufacturers sometimes will actually have tools on their website to help you with cross-referencing. In this case, on Texas Instruments' website, you'll see there's an actual area for BOM and cross-reference tool, they're down at the far bottom right. And when you click on that, you will be able to actually enter part numbers in from other manufacturers that are not Texas Instruments, and it will actually come up and show you what parts Texas Instruments might have to fill that product need and which ones are active and even easy ways to click and buy the product directly from TI, or to see where they may have it in stock. They have different types of products in there as well, both drop-in replacement parts or functional equivalent parts as well.

Microchip has a similar type of cross reference. So if you go into their Microchip Advanced Parts Selector, that MAPS area, and you go into that tool, you'll be able to see that there's actually an area here under manufacturer. They allow you to select other manufacturers that are not Microchip. Or within Microchip, you could also look for crosses from one Microchip part to another microchip part that might have just small differences in technical parameters. But these are additional tools that you have access to at any time, if you're running into trouble and need cross referencing information. Another source here. Again, this is a connector company that everyone knows TE Connectivity. You'll see on their webpage, they also have a cross reference tool. And you'll see it there under product cross reference right in the middle of the screen. And that opens up an area where you could type in any manufacturer part and try to find either an exact match, contains, or starts with. And so hopefully, that will drive you to a part number that TE may be able to supply that you couldn't get from one of your other connector manufacturers.

These are all web tools that are out there. Again, go to your manufacturers. They're a good source of information, and they build these tools to make it easy on you to move product across if you're running into trouble. Another area that we see that our customers at IHS come to us and appreciate, is areas that... because we store historical information on components, we also store anytime manufacturer name changes. So in these cases where a company that maybe you have qualified at one point in time, you qualified a Harris semiconductor product. Well, they were to Intersil back in 1999. So it's important that maybe you can't get the Intersil product today, but maybe the Harris products are still available in the marketplace somewhere where you might be able to use those to fill void.

Again, ON Semiconductor... This happens all the time. ON Semiconductor acquired Fairchild, and now Fairchild doesn't exist out in the marketplace. So you have to look at ON Semiconductor's product line to fill that need, but you could still use the Fairchild part. It's still a valid part to cross to. So it's just understanding why, and again, having that historical record to say, "This is why we could use an ON Semiconductor part for a Fairchild part is because Fairchild was acquired by them at some point. And that's why the name just went away." And another one here is TI acquiring National. So this is just that continues to happen as these semiconductor companies consolidate and also other component companies consolidate. But having that traceability to understand where those companies were, what those names were that have disappeared, that's very important, especially in a shortage market where you could go and find additional products by using some of these older names.

Some other areas that could help you delay a redesign, things you can do, is looking at functional equivalents. A lot of the parts that you see out there could be drop-in replacements. We call them FFF or form-fit-function drop-in replacements. That's an easy decision as all the parameters should match up. But in some cases where you actually have to look at other places of supply, functional equivalents help a lot, because it gives you at least another option. One of those options is to go to your contract manufacturer, if you have a contract manufacturer, and ask them if they have any excess on the shelves from other OEM builds, because what happens is, at least at the contract manufacturer I was working at and many of the others, when they do a OEM build, they will always order a little extra product. And in most cases, when the end of that production happens, they go back to those OEM companies and they sell back the excess inventory that they had to buy for those builds.

What happens is a lot of times those companies will not actually take the delivery of the product. They will pay for the product and cut the check to the EMS company, but the actual inventory will stay on the EMS company's shelf. And that's because the OEM doesn't have any use for it and the EMS company has already paid for it. So it's just basically $0 inventory for an EMS company. And this means that they could actually sell it at a huge profit, if they could find somebody that wants to buy it. And that's usually where the independent distributors come along and they'll buy some of that excess or consign that excess or they will represent that excess out to the marketplace and try to sell it.

So if you have an EMS company you work with and you are running into a shortage situation, you make sure they're checking that excess inventory that they may have on the shelves. Or maybe they could actually direct you to an OEM that they sold excess to that actually took delivery of that excess, that may be sitting on that product and would be willing to sell that to you or help broker that sale to you. So, another way to fill a gap during this tough year. You could also explore temperature grade options, especially on parts. So if you have a commercial product you're building, but there's industrial grade temperature items out there, definitely look across the different temperature grades to see what you might be able to use.

On passives, you could also look at voltages and tolerances. In some cases on a chip cap, if you have a requirement for a 10 volt chip cap, you could use a 16 volt chip cap or a 25 volt chip cap. Same with tolerances. In some cases, if you have a 10% tolerance part specced in, you should be able to use a 5% tolerance part. Or if you really want to stretch the design, you can look at a 20% tolerance part. But these are usually just small parts of the part number are changed. So if that's the case, then you could actually quickly look up in some of the documentation what the differences are in the part numbers and go after those. Another area is terminal finish. So you'll see that the terminal finishes on parts can be as minor as tin versus tin-nickel or gold finish. So there is ways that you could look at, across different components, whether you could accept different finishes on the terminals and plating.

Real versus bulk, this is a simple one. Again, in this KEMET example, you'll see here, there's a bunch of different part numbers, all basically the same. Many of these are just packaging differences between parts. So they may have 10 different part numbers based on all the different packages that are available, whether it's bulk, seven inch reel, 13 inch reel, things like that. Breakaway pin headers... Story I could tell you about a time when I had a customer call and they were desperate for a four position pin header. And they were looking for this specific part and they kept looking and looking and could not find inventory. Well, there was a thing called breakaway pin headers. And the breakaway pin headers, you could buy them in sticks of 36 and break them into actual four position headers.

So it's a very simple fix. And even though they did look at those 36 position, which was the maximum number of pins in a stick for these headers, they still were out of stock even on the large sticks. I was able to help them by actually finding them a reel of pin headers, which nobody really looked at, or even searched for that type of part number. But it was thousands of pin headers on a reel, and they were able to use those, pull them off and make the pin headers they needed. So there are different ways to find product, if you just start looking at all the options for any particular part. Back in the day when I was working at a semiconductor manufacturer, we also, because they were high reliability parts and had extended burn in operations to test the products, there was these test samples that they would keep basically after the lots were shipped. These test samples would sit in a bin and they really weren't used for anything.

But in a situation where lead times were long and parts were hard to get, we actually found that the specifications for the high reliability parts allowed you to ship those test samples. So those were available, and actually got some customers out of some tight binds just by using some of those test samples in their builds. Also in another situation, I had a customer that was looking for a Motorola component. And come to find out there was no components on the shelf anywhere, but there were pre-production parts that Motorola introduced originally on this type of product. And the only difference between that and the actual production part was they had an X prefix on the part number. So after doing some research, we found that there is absolutely nothing wrong with those pre-production parts. The customer was able to use it just by finding out that there was some other option on the part number. And then we found the stock and shipped the stock to the customer.

So there's many ways you could find these loopholes in parts that will help you fill the socket while you're trying to get through this shortage market. Last one here, military grade parts. Again, if you have a standard commercial power transistor, a 2N2222, and you can't find any of those components out there, there are things like a JAN or a JANTX. There's also military grade products who are under the military part number that you could use that would be the exact same part. It's just screened to a military grade level. These are going to be a little bit more expensive, but in a situation where you're in a bind, these are options you could use to actually get parts for your build. One other area I've heard of is, in this shortage market, that a customer actually needed a product and ended up buying dev boards from the manufacturer, just so they could go in and extract the part they needed from the dev board.

In a situation where your line is down and that's all you could do, maybe 100 parts off of dev boards is good enough to keep your line running and parts shipping. One more area is can you socket the part? So there are sockets out there that allow you to actually run a board through the production process. So you could actually mount the socket to the board, even if you don't have the component. And then later on, you could snap the component into that position once those components come in. This allows you to, if you have everything else you need for the build, it gets that product on the line and through the line. So you're just waiting on that last final assembly piece to pop in the part you need. So this is another area that you could use as a stop gap measure to get through this shortage cycle.

So part of the Altium tools content, there is technical information in there as well. So you'll be able to see a lot of information on a component, especially if you're trying to find these functional equivalents, justify a functional equivalent, or even confirm a form-fit-function drop-in replacement. The technical information readily available. And you could go in and see things without having to open up a PDF document. Because each time an engineer has to actually pull out a PDF document out and compare them side by side, you have to find the actual attributes and then look across the two data sheets to see what matches up. It's much easier to do in the digital tools with the digital information. So you can go in and quickly extract number of terminals or plating, or even package information. It's all there readily available to make your life simple.

And if you could just save five minutes per day, 10 minutes per day, that's a half hour a week, an hour a week, in pulling documents and comparing documents. That's another justification for why you would upgrade to a Pro level Altium tool or go out and buy additional software to help you through and to save time in getting other supply chain options. We talked a little bit about areas of risk geographically. So what you want to do in a situation where you're building a new board or even supporting an old board, is try to keep an eye on where the parts are coming from. So country of origin usually is dictated by when you get the product in the back door, but we can show you areas where a part has been said to be made.

So if a manufacturer comes to us and says, "IHS, we make this particular product in three different plants, one in China, one in Malaysia, one in Mexico," we could quickly understand that these are the places it could come from. But if you have some parts that are only made in Mexico, maybe you need to steer clear of those, or only made in China. So as the geopolitical risk increases in China, you're going to see some of these areas are going to escalate and you'll want to monitor that and try to steer clear of that choice. If you have a choice between China and Malaysia and Mexico, maybe you go to Malaysia instead of China. So these are areas where you could be proactive about avoiding that type of risk, when you're doing an early design or a later design.

A couple more best practices. For core devices, like microprocessors and microcontrollers, our customers have found that there are very few crosses that are drop-in replacements for microcontrollers. So in that particular case, this is an area where you want to flag your supply chain to make sure that they are actively buying larger quantities on these critical components. Same with sole source components, should be treated the same exact way. There are ways to cross them, but it's just always difficult, as there is always something different between certain microcontrollers. You also want to look at parts that are highly used in the marketplace, because you want to actually go in and look through as you're doing new designs, or even on post designs, to see if a part is actually stocked by large distributors because large distributors put parts on the shelf they could sell.

They want A and Bs. They want things that turn quickly. And they'll talk to the manufacturers about which parts those are, that the manufacturers plan to support long term. Because guys that are the top distributors in the industry don't want to be sitting on a lot of unique, exclusive components that are only used by a couple of customers. They want that constant volume and that constant turnover. So this is an area where you want to check that out with the distributors. It's easy to do if you use tools like Octopart, where they have consolidated all the distributor information into one place. So that would be something you could do ahead of time to make sure that you're designing in parts that are actually going to be around for a while. It's critical that you research the part life cycle on a part early on, to make sure it's an active part, not recommended for new design or discontinued EOL.

This is very critical, because I could tell you many times when I was working in contract manufacturing that we had OEMs would bring in bill of materials. And they say, "This is a new product we want to launch. And our engineers have gone through and created the greatest bill of materials." And they would hand it to us to start prototyping and price out for production. And we would instantly find out there's three or four parts on the bill of materials that are obsolete. So that sends them back to the drawing board and in some cases, there's decisions that have to be made. Whether that build is going to go forward with the existing components and you buy up some old obsolete product with a last time buy or whether you have to start that design process over to move those discontinued or not recommended for new design parts off the board.

It delays the process. So if you have a way to watch that part life cycle status, and also look at years to end of life information, which does exist out there, then you actually can start getting a good feel for what parts should go on a board, especially a new build that's going to be out there for 10 or 15 years. I would also be cautious about relying 100% on contract manufacturers and distributors for lifecycle change information. The reason is because in a situation where you're doing an NPI build, you're designing a new board and you've never purchased these parts before, you haven't really gotten anything but maybe samples, how are these distributors and manufacturers going to know to alert you if they change the status on the part from active to not recommended for new design or even discontinued last time buy.

If you're relying on just them or your contract manufacturers, they may miss those because you have never purchased it. They have no record of you needing to know that you need an alert on that part. So there are tools out there that you could use, that you could upload bill of materials into and set up monitoring. So that you could actually get proactive alerts, even on parts you've never purchased before. You could upload bill of materials on parts that are in your inventory, you want to know when those are going end of life. Or products on legacy builds, you need to know when they go end of life. So there are tools and capabilities out there that will alert you in these situations for parts you've never purchased before. New and emerging tech component technologies. You really have to be careful about some of the new products that are out on the marketplace.

A lot of times the manufacturers will send out reference designs or launch new products, hoping that there is a quick uptake and that a lot of companies actually get on board with that new technology. But what happens is if they don't get traction or they don't see profitability in that part, it'll be a very short lifecycle product. And they may end of life it after just five years or 10 years. So you do want to take a look at that anytime you can, is to understand the technology and whether it's going to be something that is going to be adopted across the board. There was an article actually recently put out by Octopart that's titled What Makes New Components Popular. So I would suggest go take a look at that as well, as they will define a little bit more about how to figure out which parts are going to be popular down the road.

So we talked a little bit about these other areas, but of course, even in post design, the product change notices, end of life notices, that's a critical area that you want to get those PC and EOL alerts. And also, there's something new that we... Our customers came to us over the last year and asked IHS if we could start providing supply chain notices because that was a critical need as well. As supply chain was changing and lead times were shooting up unexpectedly, they wanted to be able to upload a list of parts and understand that when those parts changed, whether the lead times went from eight weeks to 10 weeks to 20 weeks, they wanted to get some sort of notification when that changed. Either that or the price point changed dramatically. So over the last year, we've had to develop that just to keep up with this new supply chain shortage market, to give customers what they need.

So anytime you can get those notices, counterfeit notices, product failure notices, anytime the part changes in any way, especially a part that you rely on in your builds, this is something that you should actually go out and see if you could get that information. And if you can manage that quickly, again, be very proactive about this because there's other companies out there that are running into the same problem as you are when these lead times shoot up, when a part goes to last time buy. Being informed early gives you an opportunity to be proactive and make sure that you're out there first to grab up whatever inventory there is before that supply is gone and the price escalates.

Also, suggest independent stocking distributors. There are some very reliable, independent stocking distributors out there that have been in the business a while. They've expanded their test capabilities. They're delivering on products that are vetted and traceable. So I don't discount those in the IHS tools. We've had the same issue where customers asked us for independent stocking distributor information, so we added that to the actual distributor area in the tools. And these could be gathered from all sorts of different places as well. Also, some of the distributor aggregator sites have independent stocking distributor inventory as well. But the key is to make sure that you're getting parts that are quality when dealing with that third party. In this particular marketplace, most likely, most OEMs and EMS companies are actively working with independent stocking distributors.

So the summary of all this is that the pain is going to continue, unfortunately. We've not seen any indications yet that the lead times are going down. But as design engineers, supply chain managers, your jobs are going to be even tougher this year, as you're going to be pushed harder and harder to find other solutions, all possible solutions to keep the production lines running. Because in the end, it's all about continuing to ship product during a time when you may have to wait six months just to get a component in. You can't have a line down for six months. It really will affect corporate revenue. So finding every option, whether it comes to cross referencing a part or using any of the things we talked about today, it's a way to keep those supply chains working and that supply to your lines.

Another point, as the Jabil survey showed, that management's willing to spend money right now on tools and technology. Because having a line down for even just a couple of months is a huge amount of money that the companies are not going to be able to find at the end of the year once the supply comes back. So if they can invest in some sort of web tools technology to stay ahead of the game, to look for cross-references, to get alerts so that you're being proactive on supply chain issues, they're willing to actually invest in it. So bring it to your managers. They might be willing to actually pay the price right now and get what you need to do your job more effectively.

Especially when the engineering people that are out there right now are stretched thin with all the early retirements and other issues going on in the marketplace. So I know that they're working very hard to keep up with the volumes of what they're asked to do, whether it's redesigns or second sourcing products. So this will help tremendously because with these type of tools, you could have a few engineers doing the work of many. And those of you that have the tools, that have signed up for the Altium Pro packages, that have other tools at your disposal, do a little bit more to understand the advanced capabilities of those tools.

We have customers at IHS that get our tools and a lot of times they'll come to us and say, "Well, I needed to do this, but it wouldn't do it." And once they tell us that, we tell them, "Well, absolutely it will." And it's just a training issue or it's just an area that they didn't find within the tool set, that we just had to show them and it solved the problem instantly. So if you have these tools already at your disposal, make sure you go back to the people that are supplying those tools and ask for help with the problems you're having, in which case a lot of times, that you might have the answer sitting there right at your desk. Thank you for your time today. Hope you enjoy your AltiumLive event. And I look forward to answering your questions at the Q and A session following the presentation today.

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