Product Design for Inflation Factors

Component and material cost inflation is tied to inflation driven by supply chain factors. For many months now, component parts coming from Asia have been in short supply, driving the supply-and-demand pricing.

Availability of key components is still a major issue in many part categories.

Compounding the availability of materials are the delivery commitments that have been unreliable, even when planning for long lead times. A delivery date does not necessarily mean that the suppliers will meet their committed dates.

In some cases, availability of components is taking precedence over cost when making design decisions.

Because of the supply problems, there is less room for negotiation around price. Simply put, there is an excess of demand so one can expect little pricing flexibility.

The current situation is unlikely to change significantly in the next year. The problems we have today will persist into 2023 and possibly longer, until supply is able to catch up. The CHIPS bill, recently passed by Congress and signed by the President, will take years to have an impact.

For years, factories have been organized around just-in-time (JIT) manufacturing practices and are now struggling with the need to build safety stock inventory. This further compounds the supply problem and adds to holding costs.

Design engineers need to provide guidance to procurement for risk buying of long-lead components.

Encourage manufacturing operations organizations to pause JIT manufacturing practices. The risk of parts outages is too high to run lean inventories.

Create printed circuit board (PCB) designs that can accommodate alternate parts. While this makes the PCB and software design more challenging, it does provide procurement with some negotiating leverage and purchasing options.

In some cases, design engineers will need to forgo the use of latest and greatest components in favor of those more readily available. There may be cost advantages, in this inflation driven cycle, to using mature componentry. However, this needs to be tempered by avoiding components that are likely to be discontinued given low demand or profitability for chip manufacturers.

Give careful thought to product feature sets. Given the inflationary pressure on materials, this is not a good time to allow for “feature creep” that can drive up cost compounding the problem of rising component cost.

Watch out for obsolescence creeping up more quickly and more unexpectedly than in the past. Given inflationary pressures on component manufacturers, they are culling lower margin parts in unexpected ways. Chip manufacturers are racing to squeeze out maximum yield on silicon wafers.