Rising Material and Labor Costs Continue to Plague Global Electronics Manufacturing Supply Chain

Ease of recruitment and profit margins declining, along with inventories

IPC’s January 2022 global electronics manufacturing supply chain sentiment report found that materials and labor costs continue to be the largest issue facing the electronics supply chain, with nine in 10 electronics manufacturers reporting rising materials costs and more than three-fourths reporting rising labor costs. Though order flows continue to be strong, and both capacity utilization and shipments are expanding, survey respondents reported growing backlogs and shrinking profit margins.

Among other conclusions, the survey results found that:

  • Material costs are currently rising at a higher rate in North American than APAC: 96% of North American manufacturers report rising material costs, a significantly lower 74% report material costs are up in APAC.
  • Inventory available to customers is declining at a higher rate in North America compared to both Europe and APAC: 49% of firms in North America reported declining inventory, while only 21% of firms in Europe and 16% of firms in APAC are experiencing declines.
  • Manufacturers indicate the current semiconductor shortage is driving longer lead times, delayed deliveries, declining orders, increased inventories, rising costs and lost production.  Combined, these impacts are affecting manufacturers’ ability to complete orders, ultimately reducing profitability.

“Manufacturers expect to see continued increase in material and labor costs,” said IPC Chief Economist and report author Shawn DuBravac. “Escalating costs are in turn compressing profit margins. Ease of recruiting and finding skilled talent is expected to remain challenging and inventory levels are expected to remain tight for at least the next six months.”

IPC surveyed hundreds of companies from around the world, including a wide range of company sized and representing the full electronics manufacturing value chain. Survey respondents were from North America (44%), Asia (20%) and Europe (17%).

View full report: The Current Sentiment of the Global Electronics Manufacturing Supply Chain.