Price increases due to shortage of raw materials and personnel

Price increases in the components sector are skyrocketing. The corona pandemic, problems in the energy sector, shortages of raw materials and increasing personnel shortages mean that companies cannot sufficiently meet the enormous demand for components. FHI spoke with Niels Braams, director of Würth Elektronik Netherlands, about the raw materials crisis and hope on the horizon.

“The demand from the market is abnormally high and the supply of raw materials is abnormally low, causing prices to explode. I have never experienced this before in the twenty years that I have been working in this industry,” Braams starts. “ All over the supply chain to sit bottlenecks. Due to corona, the supply of raw materials is a problem. Factories had to close unexpectedly by order of the government and transport was restricted for months. At the same time, market demand has increased so quickly in a short time that suppliers simply cannot keep up.”

Perfect storm

“Compare it to 'the perfect storm' where everything comes together at the same time. Due to corona, people are working more from home and the need for electronic devices is increasing, both for work purposes and for entertainment. But corona is not the only problem. A change is currently taking place in the automotive industry. The demand for e-mobility is skyrocketing, causing the demand for components to increase proportionately. The rollout of the 5G network also causes a peak in demand for new hardware. In short: the need for electronics is higher than ever before.”

Frustrating

Added to this are the problems in the energy sector, together with the global workforce shortage. “The latter in particular is very frustrating. It happens that ships with parts are in the port for weeks because there is no manpower to unload and transport the items.” According to Braams, the biggest crisis is in semiconductors. “The production of semiconductors is already sold out for 2022. So the earliest you can place an order is for 2023.”

Hoarding components

Braams sees that dubious parties are responding to the shortages by selling old parts as new at the top price. There are also customers who start hoarding. “They buy in bulk and do not realize the effects of storing parts for too long. It is important that you store components under the right conditions. The humidity, packaging and temperature of the storage location are essential to ensure quality. Customers who buy a stack of boxes six months before production and place them in a damp garage at home are in for a rude awakening. They then call us in panic because the parts are damaged and are no longer easy to solder. Hoarding is absolutely not the solution.”

Plan well

But what is the solution? “That won't be there in the short term,” Braams admits. “We try to inform our customers in a timely manner about changed delivery times. We explain that regular delivery times are unachievable in the current market and that they must adjust their planning accordingly. Most customers understand this, but there are always people who think they know better or that we deliberately portray the situation negatively to quickly win orders. They then go 'shopping' elsewhere and at some point run into failure. Good planning is the only thing you can do to cope with the crisis in the short term. And you have to accept that prices are higher than in recent years.”

no sell

Not everyone is as understanding when it comes to price increases. “Some customers refuse to pay more and refer to past pricing. They don't realize it's a global problem. They often postpone their orders until it is too late. The parts have been sold or the delivery time has been extended even further. Fortunately, we have a lot of stock, but that is slowly starting to run out. There may come a time when we have to say 'no'. Then as a company you are faced with a choice: who are we going to deliver to? With us, the customers who order first receive the items first. The semiconductor industry sometimes chooses the highest bidder, with all the consequences that entails. Take for example the automotive industry. They did not want to go along with the prices. Now they are behind in deliveries and still have to pay the higher prices.”

New insights

It is inevitable that consumers will feel the price increases in their pockets. But there is also hope on the horizon: “The raw materials crisis provides new insights. It has made it clear that the components sector is too dependent on Asia. This has to do with the low wages, which makes purchasing prices competitive. Something needs to change in that area. “ Braams does have ideas about that. “There are two options. Or you accept the fact that you pay more for a product made in Europe. We see that some companies choose this. They deliberately advertise 'Made in Europe'. The second option is to establish component factories in Europe. If we invest more in automation, we will need fewer employees and we can compete with low-wage countries.”

Future vision

For Braams and his colleagues, this year is all about looking for solutions. “In the near future, I would prefer to see factories from the entire component supply chain located in Europe so that we are less sensitive to external influences. Until then, we will try to inform our customers as best as possible so that we can tackle the raw materials crisis together.”