Back to the Future: Electronic Component Allocation

Not since the year 2000 have we seen such widespread lead-time growth. What is going on?

Back in 2001, when I started in the independent distribution industry, I used to tell my clients about the 7-year cycle.

This theory was fact-based, with the data coming from one of the largest franchised electronic component distributors on the planet. The theory had held strong for over 50 years. The belief was that supply typically outstripped demand for a period of 3-4 years, creating a very stable supply situation for the buyer. This would be followed by around 2 years of lengthening lead times, short supply and eventually, allocation.

This time around, the 7-year cycle has been blown apart altogether. After the best part of two decades of relative calm, allocation came roaring back after 2020, and the forces now driving it, electric cars, the internet of things and AI, are not the sort that simply fade away the way the millennium bug did. This is no longer the neat, predictable pattern I used to describe to my clients.

What Does Allocation Mean?

Allocation happens when parts are in such short supply that not only is there a long lead time, but the manufacturers cannot supply the demanded volumes for the foreseeable future. They then “allocate” a percentage of your requested volume to you, effectively sharing the available stock amongst all of their customers.

Let’s imagine you need 100K pieces per month of a Freescale / NXP Semiconductor part MCZ33972AEWR2. Your production output depends on that part being available. You have been on top of lead times and have been adjusting your orders accordingly, so you are safe, right? Well, you would think so, wouldn’t you?

When allocation strikes, you may be told that your allocation is 10% of your forecast. There is very little you can do about this, and the further down the food chain you are, the more you will suffer. Some very large manufacturers have severe financial penalty clauses in their supply contracts. If the supplier can choose who to give stock to, who do you think will get the first option on the parts you need? This could bring a very abrupt halt to your production line and could affect many items on your bill of materials (BOM) across all commodities.

Allocation ran throughout 1999, all of 2000, and again after 2020. Lead times for all commodities exceeded 52 weeks, and many items were placed on allocation.

What Caused Allocation in 1999?

Long lead times, shortages and eventually allocation are ultimately caused by supply outstripping demand. A few different growth drivers were behind the sudden upsurge in component demand. Mobile phones (cell phones) were becoming normalised; once the preserve of yuppies and poseurs, they were becoming affordable and accessible to the masses, and boy, did everybody want one.

The other significant driver of this component demand was Y2K, also known as the millennium bug. Some clever sort discovered that many PCs would not function after January 2000 because the coding in early computers hadn’t planned far enough ahead and used a 2-digit code for the year. The fear was that the year 00 would mean 1900, not the year 2000, and computers would not compute. Computer systems around the world would crash, planes would fall out of the sky, and every business that relied on computers would cease to function. This scenario was so scary that pretty much everybody had to replace their entire IT infrastructure, creating enormous panic-driven demand.

An estimated $300 billion globally was spent upgrading computers and application programs to be Y2K-compliant. How big a threat the millennium bug really was is debated widely but suffice to say it certainly drove up demand for electronic components.

What Was the Cause of the Shortages in 1999?

The main drivers at the time seemed to be the advent of the “internet of things” and the computerisation of the motor car to facilitate driverless cars. Both of these growth industries were taking off faster than anyone could have anticipated. That increase in demand had more in common with the growth of the mobile phone (cell phone) industry than the millennium bug, in that it was the take-up of new technology that was the main driving force.

By its very nature the millennium bug demand was finite and tailed off rapidly on January 1^st, 2000, when we all realised that the world could still function. The mobile phone (cell phone) industry, though, kept on accelerating. The relative stability that followed for the best part of two decades was the result of that growth being predictable, and of component manufacturers being able to keep pace.

And Sure Enough, Allocation Happened Again in 2020

The trouble is that stability did not hold. After 2020, allocation returned with a vengeance. Lead-times ballooned, distributor shelves emptied, and whole industries ground to a halt waiting for parts they had always taken for granted. If you lived through it, you will not need reminding.

And this cycle has a nastier character than the last one. The millennium bug demand, as I said, was finite; it came and it went. The forces behind today’s shortages are not going anywhere, and if anything they are accelerating. Let me explain what is really pushing them now.

The Motor Car Has Gone Electric  

Take the motor car. The computerisation was only the start; the bigger story is that the car has gone electric, and the electric car is far hungrier for components than almost anyone expected.

A traditional petrol or diesel car uses somewhere between 3,000 and 8,000 of those tiny multilayer ceramic capacitors (MLCCs). A modern electric car can swallow more than 10,000, and the really clever “smart” ones over 22,000. And that is before you count the semiconductors. An electric vehicle needs two to three times more of them than its petrol equivalent: microcontrollers to manage the battery, gate drivers, power modules, sensors and all the driver-assistance wizardry we were only dreaming about a few years ago.

Now multiply that by every carmaker on the planet racing to go electric at the same time, and you begin to see the problem. The supply base was simply never built to feed an appetite like this.

And Then Along Came AI 

Here is the twist I don’t think anyone really saw coming. The artificial intelligence boom is not just gobbling up fancy GPUs and cutting-edge chips. It is quietly starving the supply of the ordinary, everyday components that have nothing whatsoever to do with AI.

The big, advanced factories are throwing everything they have at AI accelerators, because that is where the money is. That squeezes the smaller foundries that make the humble parts the rest of us depend on: the microcontrollers, the analog chips, the power management devices, the MOSFETs. Right through 2025, I watched lead-times stretch out again on perfectly mature parts from the likes of Microchip, ST, Infineon and NXP. Parts that have been around for years and ought to be the easiest things in the world to get hold of.

It is a strange sort of irony. The most advanced technology on earth is causing shortages of some of the most basic components on your BOM. If you want the full picture of the forces reshaping supply at the moment, we pulled it all together in our Semiconductor Industry Trends Report 2026.

Why This Time Really Is Different 

The relative calm we enjoyed after 2001 lasted because the growth was predictable and the manufacturers could keep pace. That is simply no longer true. Electric cars, the internet of things and now AI are all pulling on the same rope at once, and not one of them has an off-switch the way Y2K did.

It is worth setting the two eras side by side:

So, when you plan for the next bout of allocation, do not assume it will pass as quickly as the last one did. The conditions that create these shortages are now well and truly baked in.

Facing extended lead-times or allocation on critical parts? Get in touch, and we’ll help you track them down.

Many Commentators Said, Shortages of This Scale Could Never Happen Again!

With the advent of sophisticated MRP systems, the belief was that purchasing and forecasting were now so clever that the shortage cycle was dead forever. Manufacturers could plan and build with ever-improving efficiency. What could go wrong?

Component manufacturers are typically very large businesses, and large manufacturing organisations tend to move cautiously and slowly. If future forecasted demand suggests that you need to build a new factory, there is a case to build to secure the investment. But having recently come out of the biggest global recession in living memory, is it surprising that the executives holding the purse strings are reluctant to loosen their grip? The rusting padlocks on the gates of past technology factories are a testament to how quickly things change, and nobody wants to build the next white elephant.

We had been hearing about the Internet of Things being the next big thing, but did anyone really believe it would grow so fast? Some connected technology makes sense, but in a very short time, we have been inundated with connected devices: fridges, light bulbs, toothbrushes, juicers.

It’s all nonsense, but it seems we really do want these crazy things. If it is not connected, it is just so last century. I even found myself needing a new lawnmower recently and considering quite seriously a very expensive internet and GPS-connected automatic machine. Even though I did resist, it seems I too have gone mad!

There is a second problem with all this clever software, and it is a sneaky one. When allocation strikes, the natural instinct of every MRP system is to pile in and order more to protect supply. But when every company in the chain does exactly the same thing at exactly the same moment, the demand signal reaching the manufacturers becomes wildly overstated. They suddenly see demand several times higher than anyone is really using, and they cannot tell a genuine order from a panicked one. This is sometimes called the bullwhip effect, and it makes allocation last longer and unwind far more messily than it otherwise would. Which brings me neatly to a warning.

A Word of Warning!

The last time allocation became prevalent, “smart buyers” manually adjusted their forecasts to ensure that they got the stock they needed. Inflating your forecast tenfold is a very risky business. I witnessed one company in Scotland that did this across many part numbers. They did manage to keep their production lines fed throughout 1999 and 2000, but when the supply chain normalised in January 2001, they received a very large bill for all of the stock they had on order. 10 years’ worth of production on some very expensive lines! The company struggled on for a few years but eventually died off.

Beware - Short supply can lead to shortcuts!

MRP systems have replaced thousands of buyers who had expertise and contacts that were useful in a crisis. Your normally robust purchasing procedure can sometimes be compromised when buyers get desperate. And when authorised distribution runs dry and people start buying from sources they would never normally touch, that is exactly when counterfeit and substandard parts find their way into the supply chain. In industries like automotive, medical and aerospace, that is not just a financial risk, it is a safety one.

Stay safe. Buy only from trusted sources. Wherever possible, insist on fully traceable stock back to the original manufacturer.

If the price looks too good to be true in the middle of a genuine shortage, that is a red flag, not a bargain. And be careful about accepting older stock just to keep the lines moving, because shelf-life matters, especially with moisture-sensitive devices and capacitors. Solving one problem is no good if it quietly creates another.

Sitting on excess stock? Turn it into recovered value.

Learn to Spot it Coming 

The one bit of good news is that allocation rarely lands out of a clear blue sky. If you keep your eyes open there are usually a few tell-tale signs, sometimes weeks or even months before it turns critical. These are the ones I watch for:

A Little Preparation Goes a Long Way 

If there is one lesson in all of this, it is that the time to get ready for allocation is before it arrives, while options are open and prices are still normal. Know which parts on your BOM come from a single manufacturer, because those are the ones that will stop your line, and keep a close eye on anything heading towards end-of-life. Keep your stock records honest too, because you cannot plan around inventory you cannot see, which is where regular inventory audits and cycle counting earn their keep. And do not forget that in a shortage, your own excess stock suddenly has real value to somebody else, so it is worth understanding whether consignment or an outright purchase makes more sense for you.

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