SUPPLY CHAIN DISRUPTION

BY CRAIG DILOUIE, CLCP, LC

The COVID-19 pandemic disrupted the global LED supply chain in 2020 and 2021, resulting in product delays and higher costs. To understand why, we can look at how the supply chain has changed over the past decade.

First, a closer look at the problem. Shortages and delays of components like integrated circuit chips extended lead times for many LED products. Meanwhile, manufacturers faced higher shipping costs, unstable logistics, raw material shortages, unfavorable exchange rates, and supplier price increases. The good news of projects resuming and demand increasing only exacerbated these problems.

Looking at three metrics, we get something of a picture. In the fourth quarter of 2020, one out of 10 surveyed building contractors reported shortages of lighting products, according to the U.S. Chamber of Commerce’s Commercial Construction Index. In the first quarter of 2021, a number of U.S. LED product manufacturers announced price increases on luminaires and drivers. In the second quarter, manufacturers participating in NEMA’s Electroindustry Business Confidence Index largely cited labor and materials shortages and resulting inflationary pressures as being restraining factors on growth.

So back to our main question: How did this happen?

In March 2021, the U.S. Department of Energy (DOE) published 2020 LED Manufacturing Supply Chain. This publication characterizes the global manufacturing supply chain for LEDs and LED products. It shows a supply chain that like other industries has become heavily globalized, leaving it vulnerable to macroeconomic shocks like the Trump Administration’s tariffs and the pandemic.

The manufacturing process begins with an LED or chip that is typically mounted in a package that may include phosphors that convert the LED emission into visible white light. The package is in turn mounted on a printed circuit board for integration into an LED product along with other heat sinking, optics, driver, sensors and controllers if applicable, and housing.

LED product manufacturing has become diverse and specialized. LED die and package manufacturing is dominated by Asia with its lower manufacturing costs, with LED lamp manufacturing specifically dominated by China. LED luminaire manufacturing is comparatively diversified. In the United States, there is a large number of manufacturers participating in a $10+ billion market (2019).

Looking at a typical LED 2x4 troffer, DOE estimated its cost as being about five percent for the LED package, 10 percent for the printed circuit board, and the rest being the driver, optics, housing, and so on. The package cost has fallen significantly in recent years, driving overall costs down. As 75 percent of the value of an LED troffer goes to the U.S. economy, DOE stated the luminaire market represents the best opportunity for domestic manufacturing.

When the pandemic struck, the biggest impact was to produce shortages of LED packages, materials, and driver components due to manufacturing shutdowns in China, which rippled down the supply chain. On the U.S. side, manufacturers faced shortages and delays, falling sales and demand, and a combination of inventory shortages and surpluses during the first six to nine months. As the pandemic ground on, declining sales and demand took precedence. As demand covered, continuing disruptions pressured the supply chain to adapt.

Download 2020 LED Manufacturing Supply Chain at https://bit.ly/2Sr5TeN

Craig DiLouie, CLCP, LC, principal of ZING Communications, Inc., is a consultant, analyst and reporter specializing in the lighting and electrical industries, and a regular contributor to LM&M. You may contact Craig at cdilouie@zinginc.com.