Resistor Shortages: What You Need to Know

Categories : Procurement Goals | Reduce Risk Published on : Nov 19 2018

What do automotive manufacturers, Apple Inc. and many industrial markets have in common? They all have an insatiable appetite for resistors. Moreover, they are all contributing to, and suffering from, global shortages of the component. As supply chains struggle to keep up with swelling demand, prices have spiked by as much as 30% and lead times for some resistor types have extended out to a year. 

Rampant Demand 

Despite a global resistor monthly capacity of an estimated 3.6 trillion units, shortages are primarily attributable to heavy demand from newer, fast-growing markets. In particular, “smart” and autonomous vehicles require numerous electronic components to power their navigation and other increasingly sophisticated systems. In additionthe rapidly growing number of mobile devices such as smartphones and Internet of Things (IoT) devices (expected to number 20 billion by 2020) stoke demand for resistors. 

The deep pockets of carmakers and the healthy profit margins of mobile device manufacturers allow them to outbid other buyers. As a result, resistor manufacturers prioritize the product types that these buyers require, leaving less well funded buyers with longer and longer lead times. Average lead times for most resistor types are about 20 weeks, while some suppliers are quoting lead times of longer than 52 weeks for certain sought-after models. 

Supply Challenges 

Suppliers are ramping up their capacity, but they face several challenges. For one, bringing new plants online takes considerable time and money. Also, previous resistor shortages in the early 1990’s and 2000’s gave way to huge global oversupply, making today’s suppliers reluctant to scale up at too fast a rate only to have the rug pulled out from under them. 

Furthermore, suppliers have suffered from price spikes in raw materials. Namely, prices for ruthenium, a key element in resistors, have spiked 464% in the past year to $255/oz from about $55/oz due to shortages caused by rampant worldwide demand for the metal. Lastly, recently announced tax laws in China aimed at environmental protection have increased the cost of manufacturing electronic components, leading to higher prices for resistors. 

Procurement Strategies 

During times of abundance, resistors are an afterthought, but during shortages, even a one-cent product can stall an entire manufacturing line and create product delays. The best way to mitigate such a supply chain risk is to have multiple suppliers from which to choose, although this is easier said than done when supplies are tight. Buyers may also mitigate some risk by entering into longer-term contracts with suppliers when prices are low. Where possible, companies should strive to align their product design and component inventory planning with suppliers’ production roadmaps. They can accomplish this by avoiding single-sourced parts and increasing the level of cooperation and transparency between product designers, procurement teams and suppliers. 

If history is any guide, the pendulum will swing, supply will catch up to demand and prices will fall, although most sources don’t anticipate this occurring until late 2019 or early 2020 when a number of resistor fabrication plants are anticipated to come online. Keeping this in mind, buyers should time their purchases and contracts accordingly.

By: Ben Kempenich, Business Research Analyst

Originally published on Inside Supply Management

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