Products

Today’s supply chain systems – why companies aren’t equipped to handle the new normal

By Stephen Chavez

In our first podcast on supply chain resilience, we discussed how today, things look a lot different when it comes to supply chain systems. The pandemic shone a light on any pre-existing problems in supply chain functions within a lot of companies and suppliers. Geopolitical turmoil has also exacerbated these issues. A recent survey conducted by Lifecyle Insights found that 89% of engineers that responded had to remove or replace electronic components from PCB designs due to supply chain issues. So, supply chain systems are a real issue right now for the electronics industry.

This is the new normal. So, why aren’t companies equipped to handle it?

  • First, there are the complexities of enterprise operations to consider. Issues like functional silos and disparate systems, and with today’s globalization, we see distributed teams collaborating and trying to function as one centralized machine. Different teams within the same company will be going off in their own directions, and as a result, there’s a divergence of tools and sources of truths.
  • Second, the overall sourcing process is also very antiquated and has some inherent flaws. In the study conducted by Lifecycle Insights, they found that 44% of sourcing is still done through supplier websites. Some organizations even started the process with a broad internet search. And of course, if you use those disparate approaches where the source of information is going to vary dramatically, the degree of accuracy of that information is going to vary dramatically as well. You will be making decisions off an unstable platform based on information that isn’t necessarily at the same level of quality or accuracy from supplier site to supplier site.
  • Third, there are so many legacy processes within organizations that just don’t have inherent supply chain detail or the supply chain input up front; it’s always downstream. In the past, that was acceptable — there was nothing wrong with it — and we’ve managed to be successful up to this point, but those old processes and methodologies have to change.

The breakdown of supply chain systems: a real-life example

Let me share one of my recent experiences with supply chain systems. We started a PCB design right when COVID really started to hit and affect the supply chain. Very shortly into the layout phase of the design, the project just started to unravel. It seemed like at every project meeting that we’d attend, the supply chain team was coming back and saying, “Hey, this part is not available.” It was like one step forward, two steps backward.

Why did this keep happening? Well, if you’re using internal part numbers, that really represents a minimum of two to four parts because they already have acceptable alternates that can be used. So, when a part is not available, that means that none of those parts are available. Then the issue becomes: Do we design that feature out? Do we take the hit on the delay and wait until the part is available? Or do we try to find alternate circuitry that will produce the same requirement? That last option poses its own problem, because then component engineers having to do their part vetting, and that could take anywhere from seven to 10 business days.

We must have gone through this process at least a dozen times before we finally finished the design, and it was a nightmare because it wasn’t just like replacing a part, it was replacing enormous amounts of circuitry and moving stuff around. Just think about every time that EE had to stop what he was doing and do an internet search for a new component. The problem with that approach is that he’s not getting true supplier input like, how many are available or what is the true delivery time? He must question: is this information real?

By the time we finished that project, I must have redone that layout at least a dozen times, and it was very difficult for the entire team. And we went over budget because of all the extra hours that went into it. We delayed on our product delivery, and it wasn’t because the engineers weren’t doing their job. It was because our process wasn’t adaptable or set up to handle what is going on today.

I know I’m not alone. Based on Lifecycle Insight’s research, 54% of the study’s respondents said they replaced board components due to availability, lifecycle, or compliance issues at least once per board project, and 66% said it took more than 10 hours to redesign that aspect of the board.

Feeling the supply chain pain

There is pain on the engineering side; supply chain disruption makes it more difficult for them to do their job. But this problem doesn’t just manifest for them, it manifests for the organization as well. According to the Lifecycle Insights study, 48% of organizations cited a delay with the delivery or launch of products, and 45% cited increased overall product costs or cost overruns. So, it’s not just that life is painful and difficult for engineers, it is manifesting in a monetary way for these companies. So, it’s a lose-lose situation. The current state of supply chain systems makes it a challenge to rely on those old approaches without resulting in costly delays or respins.

How do we fix the problem?

The silos must come down, and how we do things has to evolve and change. And change can be risky. Already, you’re working under tight schedules. Already, you don’t have enough bandwidth. Introducing a change like digital transformation of the supply chain can be disruptive if you do it the wrong way. But there’s definitely a shift, especially for engineering, to more informed decision-making at the point of design, whether its shift-left with simulation or getting all the information you need to make the right decision around selecting a component to put on board for sourcing issues. Some of these have a greater financial impact than others. And supply chain systems are certainly a big one, and companies need to start moving in that direction.

Want to learn more about the impact of supply chain systems on PCB design? Listen to the podcast now, available on your favorite podcast platform.

Expand to see the Transcript

[00:12] Steph Chavez: Hi, everyone. Thanks for tuning in to our first episode of the Printed Circuit podcast, where we discuss trends, challenges, and opportunities across the Printed Circuit Engineering industry. I’m your host, Steph Chavez. Before I start and get into the details, let me give you a background of my experience and a little bit more about me. I’m a Senior Product Marketing Manager with Siemens. I’m the current and founding chairman of the Printed Circuit Engineering Association, an industry-acknowledged Subject Matter Expert in Printed Circuit Design with over 30 years experience, that covers the full spectrum across every market sector when we talk about commercial, aerospace, military, automotive, as well as medical. My experience spans that technology gamut, whether it’s simple to complex multi-layer, HDI PCBs, that have circuits to containing analog, digital, RF and mixed-signal, microwave, and power. So, when it comes to design, I’ve definitely covered it. I’m a Certified Master Instructor for PCB Designer Certification for IPC. I hold the highest levels of design certification from IPC, which is the CID+, and now the new PCEA certification, the CPCD as well. I’m the co-author of the PCE-EDU Design Engineer Curriculum book and certification that has now been out and published to the industry. I also hold cherish and close to my heart that I’m a United States Marine. I served five years in the military as an avionics technician, so that’s at the core of the foundation of my leadership. So, that’s me in a nutshell. And with that said, joining me today is Chad Jackson, CEO of Lifecycle Insights. Chad, thanks so much for being here and joining in.

[01:43] Chad Jackson: Thanks for inviting me. I’m looking forward to it. And, by the way, thanks for your service.

[01:48] Steph Chavez: It’s my honor. Today, we’re going to center our conversation discussions around supply chain systems, where companies today aren’t always equipped to handle the new normal. It’s brutal today, and it looks a lot different than in years past. I know I’ve had recent experiences that illustrate this issue. But before I share, would you give the audience here a brief background of who you are, and a little bit more about where you come from?

[02:17] Chad Jackson: Yeah, absolutely. Thank you so much. So, at Lifecycle Insights, we conduct a lot of research, we publish a lot of guidance for engineering executives, looking at tech-led initiatives, trying to help them figure out what’s the right thing that they should invest in and how to go about it, which is no easy task. That’s what we do. And I started the company back in 2010, and I’m still very excited about it.

[02:41] Steph Chavez: One of the other things I want to talk about was how do you define the new normal when you see how things are unfolding here in the industry. What’s your take on that?

[02:49] Chad Jackson: I think you’re right. The industry did operate a certain way for a while. It worked, but in recent times, we’ve seen really bad problems emerge with the supply chain. Those vulnerabilities that have been exposed very recently had been there for some time. There are some inherent flaws in the processes and the approaches that are used. Lots of functions and manufacturers were hindered by the pandemic, there’s no doubt about that, but it really accelerated the problems in supply chain functions within a lot of companies and the supply chain themselves with suppliers. Geopolitical turmoil is another factor that has played into this: You look at the trade war with China a little while ago, you look at the war between Russia and Ukraine, those are contributing factors as well. We’ve been tracking this for a little while. This is one of those big issues that affect engineering organizations and how they approach things. So, we conducted some research. We went out initiated some survey-based research on design and development and how supply chains related to that. And one of the biggest takeaways that we found was that 89% of engineers, the respondents to the study reported that they had to remove or replace electronic components from PCB designs due to supply chain issues. So, this is a real issue today and it’s manifesting in a significant way.

[04:15] Steph Chavez: I agree with you and I can attest to that. Believe me, I’ve had my share, as of recent in that regard. The industry, it’s definitely impacted us and how we do things. I’ve used several of your industry feedbacks from the surveys that you guys have produced, they have been outstanding. Let me just do a little kudos to you guys as well, you guys are killing it with the surveys — amazing job of capturing what is actually happening in the industry in allowing industry subject matter experts such as myself and many others out there who are portraying or promoting that information that’s real time. So, thank you very much on your behalf. I want to make sure I say that. With the complexities of enterprise operations to consider things like functional silos and disparate systems with today’s globalization, we see distributed teams collaborating and functioning as one centralized machine. But the numerous suppliers that add to the complexity, along with their ever-expanding geographies, it’s getting more and more challenged. Then you have the fragmented cross-functional decision-making process throughout organizations. We see a very complex spiderweb-like network of this informal process. And believe me, coming from a Mil-Aero background, I can attest to this like really like, if you don’t when you draw it, it truly looks like a spiderweb in the way we discuss things. What is your take on that? Are you getting the same type of feedback?

[05:37] Chad Jackson: Yeah, there’s an interesting dynamic at play. And what I mean by that is that, on one hand, it’s one face or facet of digital transformation — that is an umbrella term meant to cover tech-led initiatives. But they’re extremely popular today, there are a lot of organizations pursuing them, but each of them is pursuing them in a different way. That’s true of different suppliers; they will go out and pursue, acquire, implement, and deploy new technologies and new processes. But the same is true of within a company, different teams within the same company will be going off in their own directions. And as a result, you see this divergence of tools and sources of truths. It’s kind of a tough one for us because we’re advocates for that kind of pursuit. Digital transformation can deliver strong value, but if teams within the same company are going in different directions, sometimes competing or conflicting with one another, you can run into problems. That’s one problem with it. I think the other side is it’s not just about org structure and org problems, the overall sourcing process is also very antiquated and has some inherent flaws. So, in our study that we conducted, 44% of sourcing is still done through supplier websites. And some organizations even started the process with a broad internet search. And of course, if you use those disparate approaches where the source of information is going to vary dramatically, the degree of accuracy of that information is going to vary dramatically, you are going to be making decisions off of an unstable platform, if you want to think of that way, you’re making decisions based on information that isn’t necessarily to the same level of quality or accuracy. And inherently, that’s going to lead you to a difficult place because it varies so much.

[07:33] Steph Chavez: How you adapt to the new change and what is happening — I can tell you, there are so much of legacy processes that just don’t have this inherent supply chain detail or the supply chain input up front, it’s downstream. And back then, that was acceptable and that was okay, there was nothing wrong with it, and we’ve been successful up to this point. But one thing that COVID has definitely proven or this pandemic has proven is that those old processes need to be brought up, our methodologies have to change, our way of thinking and how we approach design in general in our collaborations, the silos have to come down and how we do things have to evolve and change. Some organizations even start the process with a broad internet search, like manual searches. It’s amazing that this is still going on. I mean, I can attest to that myself along with several other engineering teams I’ve been on. While these processes have worked in the past, as I said, the current state of supply chain markets is a challenge to rely on those approaches without any costly delays that attribute to respins. Let me share one of my experiences that I recently had. We started to design off like any other design that we typically would, and this is right at the first part of when COVID really started to hit and affect the supply chain. We started the design off as a normal project with the customer getting the requirements. But very shortly into the layout phase of the design, where we’ll get into the layout, just starting the layout, when the EE has the schematic off, and at the same time, he’s doing a BOM analysis, that’s where the problems just started to unravel itself and unfold, as we say, presented itself or themselves because it seemed like at every project meeting that we’d attend to, supply chain was coming back and saying, “Hey, this part is not available, this part is not available.” And it was a nightmare because it was like one step forward two steps backward.

[09:42] Steph Chavez: In most Mil-Aero companies, if you’re using internal part numbers, that really represents a minimum of two to four parts because they already have acceptable alternates that can be used. So, when you’re having a part that says it’s not available, that means that none of those parts are available. Then the issue became: Do we design that feature out? Do we take the hit on the delay and wait till the part is available? Or do we try to find alternate circuitry to come up that will produce the same requirement that’s the output? And that poses its own problem because then you go through the gauntlet of component engineers having to do their vet part vetting, and that could take anywhere from seven to 10 business days, and it was a nightmare. We must have gone through this process at least a dozen times before we finally finished the design, and it was a nightmare because it wasn’t just like replacing a part, it was replacing enormous amounts of circuitry and moving stuff around. And think about every time that EE had to stop what he was doing, go back, and he would just do an internet search. The problem is what he’s finding and says, “Okay, I think this is it.” He’s not getting that supplier input of “How many are available? What is the true delivery time?” He doesn’t have the real-time knowledge? Is it real? Or is this just a number? Is it just something there, but in reality, it’s not readily available or there’s not a 1000-piece real available? And it was brutal. By the time we finished that project, like I said, I must have redone that layout at least a dozen times, and it was very difficult for the entire team. And we went over budget because you think about all the extra hours and man-hour effort that went into it. We delayed on our process in delivering and it wasn’t because the engineers weren’t doing their job; inherent to our process, it wasn’t adaptable or wasn’t set up to handle what is going on today.

[11:42] Chad Jackson: What I’ll say is you’re not alone, unfortunately. Based on our research, we found that 54% of the study’s respondents said they replaced board components due to availability, lifecycle, or compliance issues at least once per board project — so, 54%, that’s a pretty high number. And then to your second issue about the difficulty of redesigning the circuitry or component of the board, 66% said it took more than 10 hours to redesign that aspect of the board. So, you’re not alone there, it’s very, very painful, and man, I can hear the pain in your voice.

[12:22] Steph Chavez: Definitely feeling the pain. And I used that term in a few articles that I published and a couple of columns that I wrote, I used that term “feeling the supply chain pain.”

[12:32] Chad Jackson: And that’s absolutely true. There is pain on the engineering side, it makes it more difficult for them. But this problem doesn’t just manifest for them, it actually manifests for the organization as well. So, some other findings we found was what was the effect on supply chain disruptions for these organizations. 48% cited the delay with the delivery or launch of products and 45% cited increased overall product costs or cost overruns. So, it’s not just that life is painful and difficult for engineers and getting these things done, it is manifesting in a monetary way for these companies. So, it’s a lose-lose situation.

[13:15] Steph Chavez: Chad, those are staggering percentages. In some cases, they can be catastrophic, especially if you talk about small business owners. I’ll give you, for example, another experience I had, I was sitting with one of my dear friends and colleague who writes in one of the industry columns, as well as he owns his own design firm. I sat and had coffee with him the other day, and he mentioned the same thing, he mentioned the same exact scenario: Part is not available. But even worse, this is something that I didn’t know is happening now. And I’ll share with you and I’ll share with the audience is that he’s a small firm, less than 10 individuals in his company, and he finds his parts, everything’s good, he checks everything, he even validates verbally on the phone with where he’s getting the supplier and where he’s getting parts from, places his order, gets a confirmation of the PO. Everything’s good. He’s all excited and everything is good to go. He moves on to his next task, especially being a business owner. Two days later, he gets an email notice: “Your part is now no longer available. Shipping delivery day is TBD.” He got bumped. Why? Because he’s a small company and somebody bigger that has the deeper pockets is buying more in volume, maybe a more higher priority tier of a customer. He got bumped. What is your take on that? Have you heard any similar stories?

[14:34] Chad Jackson: Yeah, it happens and it’s really unfortunate, but it definitely happens. We don’t have any findings regarding that, but yeah, it happens. But a bigger issue to think about, if you forecast and look into the future, depending on who you listen to, we’re on the edge of a recession. The margin of error in the circumstances is getting thinner. It’s going to get thinner in the next year or two years. So, this is a significant problem, this isn’t just pain that engineers feel. We’ve got to be careful about this because this can quickly translate into companies going out of business.

[15:09] Steph Chavez: Luckily, like I had mentioned, my dear friend and colleague, he was able to handle the impact. But it was definitely a financial hit because he missed his delivery. You think about the ripple effect that happens: reputation and stuff. Luckily, that’s not the only egg in his basket. A small company can’t take that kind of hit. I love the details that you guys are collecting within your surveys and what you’re sharing. Well, it’s definitely on-point and it’s really eye-opening, and it will be interesting to see how the industry evolves and changes, and if companies will accept the fact that they have to change in order for them to stay afloat or to be successful, or will resistant to change to stay with a formula that they feel “Well, this has been successful for us and we’re gonna stick with it.” How long will that last?

[16:45] Chad Jackson: It’s a challenge. Fundamentally, a lot of organizations sometimes have hesitancy because there’s risk. Already, you’re working under tight schedules. Already, you don’t have enough bandwidth. Introducing a change like an initiative like digital transformation, it can be disruptive if you do it the wrong way. But there’s definitely a shift, especially for engineering, to more informed decision-making, whether it’s shift left with simulation; “Let’s verify before you go to a prototype.” Let’s get all the information you need to make the right decision around selecting a component to put on board for sourcing issues. The impact of some of these are greater in a financial perspective than others. And this is certainly a big one and companies need to start moving in that direction.

[17:35] Steph Chavez: I couldn’t agree with you more on that. Chad, that’s awesome, your insight. Keep it up. I think you guys are doing great. So, as you could see, we’re truly at a turning point here where the approach needs to change. The way we do things and how we’re functioning, we’ve got to adapt to change in our new environment. And Chad, as you said, there’s no light at the end of this tunnel. This is our new reality. How we attack this or how we do this will dictate where we’re going to be in the next five or 10 years going forward. So, tune in next time for our discussion. We’ll take a look at how existing infrastructures put you at a different disadvantage because of resilience is not built in the process, as Chad and I have discussed. Again, I want to thank you, Chad, as well as everyone else for tuning in. I hope you continue to tune in and follow me on this Printed Circuit podcast.

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This article first appeared on the Siemens Digital Industries Software blog at https://blogs.sw.siemens.com/electronic-systems-design/2022/11/30/todays-supply-chain-systems/