The Just-in-Time Supply Chain Shifted to Just-in-Case

Economists are saying inflation is sticky these days, but if inflation is sticky, then so are component shortages. Despite what appears to be a rollover in demand with semiconductor inventories catching up to levels not seen in 24 months, rolling shortages still appear to be a persistent problem. You can pass all the legislation you like, but rolling shortages in many components appear to be here to stay, at least in the near term.

Over the course of the past year, the electronics sourcing strategy used by large and small design firms has shifted from just-in-time to just-in-case (JIC). The just-in-case approach to supply chain management requires holding inventory, planning ahead, and broadening your supplier base. It sounds like an obvious shift, and many individual designers have taken this on over the past year. But at the higher volume end of the supply chain, implementing JIC supply chain management means more than just ordering from two distributors.

What is a Just-in-Case Supply Chain?

On the surface, the difference between just-in-time (JIT) and just-in-case (JIC) is simple: in JIC, you hold inventory in anticipation of needing it later, while you try to hold little inventory with JIT. The current structure of the electronics supply chain largely incentivized some companies to implement JIT over the past couple of decades, and this was enabled by global shipping, storage, and logistics operations. You would go to your preferred distributor, put in your orders, and expect to receive your components in a matter of days.

COVID flipped this on its head and showed us three factors in quick succession that can kill JIT supply chains:

1. Temporary shutdown of parts manufacturing centers, which puts them in a state of constant catch-up

2. An injection of liquidity for consumers, which creates spiked demand despite production shutdowns

3. Geopolitical tensions that draw from the current supply 

Over the recent few decades, you might have #1 or #3 happening individually, and we saw nothing like the two liquidity injections into markets implied in #2. In 2020-2022, we had all three of these simultaneously, so it’s no wonder the JIT model is constantly trying to catch up with demand. Even as demand for the hardest-hit areas has dropped somewhat, inventory is still unable to catch up. See integrated circuits supply and demand data from the August 2022 Electronic Design to Delivery Index data below.

JIC Supply Chain in Prototyping vs. Scaling

I don’t write this next section to brag, but JIC is a strategy I’ve been telling clients to take for over a year. In the middle of 2021, it seemed obvious to think ahead and purchase the components you would need for any upcoming production runs. This is particularly the case for parts that do not have perfect replacement, which happens to be many advanced electronic components. Some examples I’ve dealt with include:

• Many specialized ASICs (usually sensor interfaces)

• MCU SoCs with a specific interface or feature not found on other parts

• A variety of FPGAs

• Network processors

• A huge range of DC power regulators

• High-capacity memories (RAM and Flash chips)

The difference between many of our client projects and teams working at the enterprise level is one of scale. When we’re working through a design with a client, we will eventually hand the design off to a manufacturing partner under a rep agreement. At that point, we’ll be there to help manage the transition and provide advice on alternative parts, but scaling is out of our hands and the manufacturer has to work with the client to find reliable sources.

Prototyping

So this means that JIC supply chain management is relatively easy during prototyping. The simplest strategy to implement JIC is to overbuy the most important components. When purchasing for a prototyping run, plan to have extra parts for 1-3 more prototyping runs, at least for the most at-risk components. Whatever is leftover can be consigned to the manufacturer once it’s time to scale. Alternatively, in the event you make a major architecture change, you can sometimes manage to make a trade with another company or distributor for your alternative parts.

Scaling

When scaling, it’s not so simple, primarily because no one wants to hold huge amounts of inventory and simply because of the large number of components that need to be procured. To implement a JIC approach while scaling, companies need to 

• Locate and engage with multiple suppliers, both in terms of component vendors and distributors

• Identify substitutes and spin variants early to account for possible disruptions

• Develop multiple strategic partnerships with suppliers and customers

• Engage in a shared inventory or trade model with competitors or external service providers

In the broken JIT environment, companies may have no choice but to hold excess inventory and implement creative strategies to ensure they can acquire the components they need.

The Takeaway

JIC supply chain management is a mindset as well as a set of management practices. A bit of planning ahead can help ensure your product can be put into production again in the future. Buyers should ask themselves the following questions:

• Are we able to procure extra parts now so that we can have a production run in the near future?

• Will the client/product need a future production run? (if you’re prototyping, the answer is almost always “yes”)

• Does it really cost much more to procure extra components so we can produce again later? (the answer is sometimes “no” depending on volume)

• Will holding inventory for an upcoming production overwhelm our storage capacity? (for electronics, it’s usually “no”)

• Are inventory trends signaling sufficiently frequent component restocking?

For small design services firms, startups, and individual designers, the cost of implementing JIC supply chain practices is basically zero. Service bureaus and CMs will have the luxury of passing the costs involved in this onto their clients, while OEMs will need to build this into the price point for their products. Taking a selective approach to JIC supply chain for particular parts can help buyers de-risk their products and ensure they can produce repeatedly as needed.

Companies that want to implement a just-in-case supply chain strategy need access to data, insights, and a sourcing platform like Octopart to help locate and procure components. Octopart provides advanced search and filtration features to help buyers find components and up-to-date distributor pricing data, parts inventory, and parts specifications. Take a look at our integrated circuits page to find the components you need.

For more key industry insights, subscribe to Nexar Cloud Platform's free monthly EDDI report, which offers a clear view of supply and demand trends within the current component landscape.