Impact of component shortages on R&D

10 May 2011 Sandeep Mehta

In Apple R&D and Steve Jobs Methodology: User Centric Design, we discussed how digital technologies let Apple focus on user experience.  The ability to focus on user experience, in turn, made Apple succeed where Japanese manufacturers failed – because Japanese companies focused primarily on components.

Apple’s success has had a big impact on the industry landscape.  There has been significant consolidation in component manufacturers.  More importantly, other companies have increased their focus on user centric design.  The result is that everyone is demanding the same set of components from a decreasing pool of suppliers.  The balance of power is now shifting again – from system designers to component manufacturers.

The article Getting Through the Shortages: No More Being Choosy in Nikkei Electronics has some very interesting data for R&D managers and strategy developers: “

The shortage in key components that began in summer 2009 is shaking the electronic equipment industry, and bringing about major change in the balance of power between equipment and component manufacturers. In response, equipment manufacturers are beginning to take action to ensure continued access to essential components at low cost.

Here is a great graphic from the article showing an strong increase in profits at the component manufacturers:

 So, what are the lesson for R&D managers:
1. Plan and design modular products: If one component becomes hard to obtain, you should be able to swap it out with another.  Modular products are always a great idea, but in case of supplier concerns, they become even more important.  The article had a great example of HTC Desire that shipped with an OLED screen, but had to be converted to LCD because of supply problems at Samsung.

2. Find commonalities between products:  If you can use same components across all your products, your volumes will increase and it will give you a greater clout with the suppliers. This is a challenge for R&D, because common parts will inhibit complete performance.optimization for each products.  Here is the graphic from Nikkei:

3. Secure supply by prepaying for parts: Self explanatory.  But still important for R&D managers because you will be locking in a particular component for a long term.  Designs around them will need to be robust enough to accommodate the parts from the long term supplier.
There is a lot more about R&D strategy and planning at the R&D Management Blog.

Article first published as Impact of Component Shortages on R&D on Technorati.

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