Even though some monitoring and control tasks can move from hardware to software and cloud-computing, most of these jobs are still performed by modules on plant-floors or in the field—and none of those servers, software and components can operate without microprocessors. Even the most sophisticated software has to run somewhere.
This reality makes microprocessors indispensable no matter how long their lead times are. It was also the primary inspiration for the Biden Administration’s Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, which passed in August 2022, and calls for a more than $230 billion investment in U.S. microprocessor manufacturing and related research.
“Many manufacturers worldwide shut down or vastly cut production during COVID-19 in 2020-21, so we saw lead times for microprocessors and other electrical components increase from eight weeks to 55-75 weeks,” says Scott Saunders, president and CEO at Moore Industries-International Inc. “We also couldn’t get critical components because the largest distributors prioritized in favor of their biggest customers, namely telecommunications and automotive. Most industrial customers use lower volumes of integrated circuits and microprocessors, so we were pushed to the back of the line. Being on the second tier is a huge problem, but ending up in the third or fourth tier is a nightmare.”
Unexpected pressures
Even though lead times eventually improved a bit for these key components as the pandemic dissipated, Saunders reports that a new lead-time problem surfaced that many people didn’t predict. The pandemic exerted lots of financial pressure on component manufacturers worldwide, and many were forced to sell their operations to competing suppliers through a merger and acquisition (M&A) process, or they had to close permanently. Saunders adds the M&A option was most prevalent, which resulted in key components becoming obsolete, and led to unforeseen, last-time buy options for suppliers like Moore. This short notice obsolescence added further lead-time challenges, higher prices and critical production line-down scenarios.
“When a chip supplier goes out of business or merges with a larger company that stops making a chip we’ve designed into several of our products, all the software and firmware we’ve written has to be ported over to a new replacement chip,” explains Saunders. “This can be very costly, consumes lots of development time, and has to be completed as quickly as possible to prevent line-down situations. On the flip side, if you decide to agree to a last-time buy of these parts—which is most often your only choice—prices can easily go from $2.50 to $14.50 each, thus drastically increasing inventory levels and the cost of product manufacturing.
“No supplier can escape this problem. We’re rewriting software and firmware for existing products when we’d rather write new software for new products. Our headaches quadruple when a chipmaker or key component supplier goes out of business or merges. While lead times are slowly getting better on some parts, there is still a continuation of component obsolescence taking place as a direct result of the pandemic.”
