How to plan for an increasingly volatile flash memory market

Paul Norbury, CEO and founder, Cardwave

When it comes to flash memory, sourcing can be a complex matter at the best of times. Now the pandemic has created a number of challenges which could not have been foreseen. Production of memory and computer chips has been made more challenging, manufacturing bottlenecks have arisen and access to the finished product has been hampered by national and international transportation issues. 

Meanwhile demand for some types of flash memory has risen unexpectedly. On the consumer side, for example, video gaming has experienced a boom in popularity as so many people are spending most of their time at home. This means more of us want consoles, and there has been growing demand for the recently launched PS5 and Xbox Series X. That in turn means more flash memory is required by console makers. Data centres are also experiencing a growth boom thanks to multiple factors including the increase in home working and rising use of cloud computing services. 

Rising demand and falling supply create a perfect storm of volatility. Basic economic factors such as market consolidation and competitive pricing strategies are cyclical for the flash memory sector. The pandemic has added to the range of factors at play, with rumours circulating that some manufacturers may reduce prices while others are reporting longer lead times.

Customers need a secure supply chain

The bottom line for those whose business relies on using flash memory in products is that they need guaranteed supplies of that memory. Perhaps some decide to seek the supplies they need in the spot market, but that’s a tricky place to look. The upside of the spot market is that product might be available when other sources fail, but it is a bit like a market stall – you never really know what is going to be for sale till you take a look at what’s on offer. 

Unallocated inventory or cancelled sales – which can go to the spot market – may be thin on the ground. If excess manufacturing is limited, a cancelled sale is more likely to be passed to another customer than dumped on the spot market. In that scenario supply dries up, prices rise, companies start placing allocation, then some orders are cancelled and the process repeats itself.

In a seller’s market not only do demand-driven prices fluctuate, also memory quality can’t be guaranteed. By the time quality issues are discovered a product might be in manufacture or – arguably much worse – with the end user. Suddenly a whole batch of products that are in use by customers might develop faults, doing untold damage to a firm’s profit margin and reputation. And, if the product in question is itself used within a wider context (for example in a manufacturing plant), the customer’s reputation will also suffer. All of which makes the case against using the spot market and for developing a stable and trusted supply chain. Credible manufactures need supply chain assurance: they don’t want to play memory roulette.

Finding a trusted supplier

This volatility in the flash memory supply chain is not going to resolve itself any time soon. The effects of the pandemic are likely to continue for many months to come – perhaps for years. Design engineers and procurement managers need to plan a significant time ahead, a year or more is not unusual. Even industrial users and manufacturing plants, which need to upgrade their infrastructure periodically, must maintain a supply chain and may look to a trusted third party for specialist advice.

To maintain the supply that’s necessary for ongoing and long term cyclical needs, firms need a reliable supply partner and a solid forward plan. Sharing the plan with the supply partner means they can be proactive rather than reactive in their dealings with flash memory suppliers to secure memory for future needs. If a firm is currently reliant on the spot market or jumps from supplier to supplier, now is the time to think about forming a more structured, long term relationship with a well-respected supplier. 

A good flash memory supplier will have come through ups and downs of availability and pricing fluctuations before, and will have plans in place to weather the current difficulties and a potentially volatile future. They will have strong, well established lines of communication direct with flash memory providers, and industry connections that are robust enough that if a preferred supplier has shortfalls they can readily find an excellent alternative. Any firm currently using flash memory will need a partner with these characteristics in the coming months and beyond. 

For further information visit www.cardwave.com

This article first appeared in the April/May 2021 edition of Industrial News: Electronics & Engineering.