The manufacturing industry is in a major state of oversupply of electronic component inventory stemming from pandemic-fueled shortages and subsequent over-correction. Rising interest rates are also adding a layer of complexity to inventory planning by sparking debates around offsetting inventories with losses to mitigate obsolescence risks. Purchasers of electronic components have two immediate objectives: They must effectively predict demand shifts using concrete data to minimize risk to their bottom lines, while also ensuring that their existing inventory does not go to waste. Many of these products have expiration dates and lead times of up to two years which poses a risk for holding inventory that will be useless when demand ultimately rebounds. As the macro economy continues to shift unexpectedly, market visibility becomes increasingly critical for mitigating design risk.
AI Tools
Customers are constantly looking for ways to effectively predict market shifts and avoid over/underbuying. By leaning into AI-powered predictive analytics, manufacturers can leverage historical customer data to anticipate inventory needs. Market intelligence tools can help support purchasing teams and increase supply chain visibility. They can make market forecasting easier by:
- Leveraging advanced analytics and visibility into real market transactions and allowing companies to identify supply chain cost-saving opportunities.
- Using part data from suppliers to analyze historical inventory fluctuation trends and pricing history and providing market availability during the procurement process.
- Using intuitive obsolescence monitoring tools and workflows to find, manage and resolve component risks and optimize the supply chain.
- Giving buyers, engineers and any staff members access to crucial information that is continuously updated using automated technology.
AI provides quicker turns on matching supply and demand and quicker view of potential shortages or obsolescence. As technology evolves and accessibility increases, we can expect adoption to do the same. Within the next three to five years, we can expect this to set a new standard for supply chain operations. Humans will always be involved and review the final data, but AI is a useful tool that helps speed up the process and it will become a natural part of the workflow.
To address existing obsolescence concerns, an opportunity presents itself for stockpiled components to find a second life. Board-level and chip-level components are typically evergreen products that can be saved for many years when properly stored. When manufacturers have the proper storage space, they can engage in cost-reduction programs.
Finding a Solution
At this point, companies can expect product flow normalization no sooner than the second half of H2 2024. However, demand will bounce back eventually, and short-term forecasts remain optimistic. In three to five years, demand will be driven back up by more applications that require electronic components (e.g. autonomous driving infrastructure and IoT-powered smart home devices). Starting now, customers will be willing to take advantage of favorable pricing when their inventory comes back into a normal range. Distributors can also kick start demand by creating inventory programs coupled with cost reductions which improve key inventory metrics and returns – a win-win for everyone.
These oversupply challenges in the electronics industry have significant global implications, extending beyond individual manufacturers. The interconnected nature of the global supply chain means disruptions impact not only manufacturers but also suppliers, distributors and consumers worldwide. The industry’s adoption of AI technologies for inventory management signals a broader shift towards digital transformation, emphasizing the need for investment in technological innovation to support supply chain visibility and stability.
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Sourceability is a global distributor of electronic components offering digital tools, services and data.