Just-in-Time

In the 1970s Taiichi Ohno developed Just-in-Time inventory management for the Toyota Corporation in Japan to make the automaker competitive against the larger, better-financed automakers in the West.  Compared to the United States, Japan has few natural resources, little land, and few capital reserves due to the recent post-war occupation.  Japanese companies could not afford to purchase, pay interest on, and certainly nowhere to store a year’s worth of automotive inventory in preparation for manufacture.  The solution to Toyota’s problems was a “buy only what you need only when you need it” inventory model that moved beyond Toyota and evolved as it migrated around the world.  

Now “Just-In-Time” inventory management is accepted common business practice.  It’s often not even discussed, it’s just what businesses do.  Especially small businesses with little capital, low daily need, and little warehouse space and inventory management for a sea of components.  “Just-in-Time” allows small businesses to share a retail market with juggernauts.

The complex logistic chains that support “Just-in-Time” inventory management currently depend on products traveling around the world overnight.  Today’s manufacturing and transportation services are so predictable that interruptions can usually be measured in minutes or hours rather than days or weeks.  Computer analysis of ordering patterns, economic forecasts, and weather patterns can all be combined to make sure that manufacturing keeps in exact pace with demand.  It’s a fantastic system that works beautifully right up to the point that it doesn’t.

The Passives Problem

There are different types of multi-layer ceramic capacitors made with different dielectric and conductors, and in late 2016, several Japanese MLCC manufacturers retooled their production lines to begin manufacturing MLCCs that would bring in a higher profit margin.  As the manufacturers transitioned, low-end MLCC supply decreased.  All the while, the bulk-purchasing automotive and smartphone markets demanded an increasing share of the available global supply, and since they are such large customers, they usually have priority to the supply.  The decrease in supply and increase in demand led to the global MLCC shortage the rest of the industry saw in 2018.  Lead times for small and medium-sized projects could be measured in months while PCBs sat on shelves – all for want of a $0.01/1ku part.

Manufacturers were eager to meet the apparent pent-up demand for these tiny components and they ramped up manufacturing to meet it.  Unfortunately, the demand was over-inflated by companies that purchased massive just-in-case quantities to avoid getting hurt by just-in-time practices again.  So in 2019, there was a greater supply of MLCCs than anybody knew what to do with, and manufacturers had to lay off trained staff who wandered away to find other jobs.  That would be bad enough for MLCC manufacturers, but in the first quarter of 2020, the pandemic took the global economy off a cliff.  With a reduced workforce, and orders not coming in, the economic bubble they had enjoyed just a year earlier had completely burst.

Fortunately, the global economy recovered quickly.  But health-care-related restrictions, mandated shutdowns, and lack of an experienced work-force have lead to decreased production capacity, which results in decreased supply.  At the same time, an increase in automotive and cellular demand for these devices will make them all the harder to come by and more expensive for everyone else.  That will undoubtedly result in more just-in-case hoarding by companies with enough capital on hand to afford it.  

In short, we’re likely to see a shortage of MLCCs again in the near future.  If your project depends on hard-to-find passives, consider purchasing them before you even begin to layout your PCB design.  You can consign them to Advanced Assembly when you place your order and we’ll put them on your board when you are ready with the final design.