Product Delivery / Covid Update

Manufacturing Status Update 17

September 20, 2022

Note: This is update #17 which reports our recent capacity expansion activities, material shortages and updated lead times. If you have been following these updates over the past two years, please excuse the reiteration of many points. The update needs to be written to include information for those reading it for the very first time.

Multiple updates have been issued since March of 2020 regarding the COVID pandemic and explaining its impact. COVID remains a global problem affecting our suppliers and factory. While new infection rates in the U.S. have moderated, new COVID variants are highly contagious and infection rates have remained high in AP Tech’s supply chain locations.

Product demand, i.e., incoming orders, continue to be very strong. In spite of our continuous improvements in capacity, bookings remain higher than shipments. Longer lead times are a direct result of the incoming order rate exceeding our ability to produce.

Significant shifts and increases in demand for products have strained the supply chain to the breaking point. The impact is to all industries, not only the semiconductor. Raw materials through finished goods are in short supply. Lead times are increasing and almost everything is shipping far later than commitment dates.

AP Tech continues to operate two full shifts, 10 hours per day including a single shift on both Saturday and Sunday. We continue to add more clean room space and production staff. The completion of our first clean room expansion was reported in update #16. We can now report it is at full capacity. Our second clean room expansion is under construction, and we expect completion by the end of this year. This year we have increased staff by 23% and continue to hire more. Cleanroom capacity in Napa has increased 10% and will increase another 50% in the first half of 2023.

With the above increases in headcount and cleanroom capacity, parts are increasingly the bottleneck. AP Tech is dealing with a wide variety and an ever-changing list of shortages. Late deliveries range from raw material, machined parts to commodity items like shipping materials, basically everything we need to manufacture products. In addition to shortages, material costs have risen sharply during this period, ranging from 7% to 20% increases.

Regarding specific shortages of note, AP Tech has alerted our customers of an industry wide shortage of PCTFE. PCTFE is the standard seat material for AP Tech valves and regulators. AP Tech and other suppliers have a single source of raw material supply. That source has started allocating material to AP Tech’s and other industry suppliers. We have initiated several corrective actions to address the shortage. We may experience delays in shipments using PCTFE seats as early as Q1 2023.

Russia and Ukraine are a source of key elements such as nickel used in making stainless steel. Although the Russia and Ukraine conflict is now in its 7th month, the impact on material availability is not fully revealed. There likely will be an impact but we do not know to what extent. We are doing our best to mitigate potential shortages.

Lead times are being quoted at 52-56 weeks for standard products. A blog is posted on our website to explain what is meant by ‘standard.’ Larger volume orders and non-standard products (anything not defined by the catalog) will be quoted upon request. These lead times are subject to change at any time and are only guidelines which can vary for a variety of reasons. A confirmation copy of the order is sent after the order has been processed which states the actual delivery commitment that may differ from the date requested on the purchase order.

The bad news on delivery is compounded by the fact that we are unable to expedite orders or commit to deliveries shorter than our standard lead times today. Manufacturing time has been and is being fully allocated for orders without a buffer (time reserved) to enable shorter deliveries. When asked for our best delivery, that is what is quoted, the first time that it is asked. Many ask us to try again for a better delivery but, unfortunately, we are unable to comply with such requests. The even worse news is that most orders are shipping later than commitment dates. Despite our best efforts to provide accurate lead times, unforeseen challenges are causing orders to ship late. Increasingly late shipments are being caused by material shortages. We are now shipping an average of 6 weeks later than the commitment date. We are sorry to say that the guidance for now should be to expect shipments to be later than the due date.

SMC, our parent company, is working closely with us on many fronts, including parts supply. Manufacturing capacity is being added and a cleanroom is being built at the SMC USA headquarters in Noblesville, IN. Machine tools are being added in Vietnam to provide more parts. These steps will add significantly to our capacity. Unfortunately, everything takes time to implement and will not provide immediate relief. We are making incremental progress each month, but more substantial steps, such as the additional cleanroom expansions, will take until later this year and beyond to achieve. Management of AP Tech and SMC appreciate the urgency of this product delivery crisis and are moving as quickly as possible to increase production.

Unfortunately, we are still confronted with a very unpredictable situation. This update provides our current status which could change tomorrow due to product demand, pandemic, or some other factor.

We continue to appreciate everyone’s patience, cooperation and understanding throughout this prolonged, multi-crisis situation. We hope that everyone is staying safe and healthy.