Tyler Kern (00:00):
Hello everyone. Welcome to a very special episode of engineering experience, a podcast brought to you by Paragon Innovations and the next generation of energy brought to you by RoseWater Energy. We’re doing a crossover episode because we really wanted to get these two guys on the same podcast, that is Joe Piccirilli of RoseWater and Mike Wilkinson of Paragon. Why? Well, these guys have a ton of experience in their respective industries, but also they have something in common and that is, they’re both impacted by the global chip shortage. It’s something that’s been going on for the last couple of years as a result of COVID-19, but both of these guys have so much experience in their industries that we thought it would be great if they sat down and had a conversation about how they’ve innovated around these challenges, the different things that they want customers and consumers to know about the global chip shortage, and what they think the future looks like and how we get out of this thing.
Tyler Kern (00:48):
And so, this is a really fascinating and incredible conversation, honestly, because these guys had never met before, but as you’ll find out as you watch through this episode or listen through it, depending on how you’re consuming this particular piece of content, these guys get along swimmingly and have a lot of insights to share. So sit back and enjoy this crossover episode of each of these podcasts and enjoy the ride.
Tyler Kern (01:08):
All right. So Joe and Mike, obviously this is something that anybody that’s been following the news over the last couple of years, especially if they’re interested at all in any kind of technology or even automobiles, one of the things that’s been discussed quite a bit is the semiconductor chip shortage. And so from each of your perspectives … Mike, I want to hear from you first, since this is really an area where you spend a lot of time. What impact has this had on what you do there at Paragon?
Mike Wilkinson (01:33):
It’s pretty devastating. Components are just not available of any flavor. It doesn’t matter if it’s a chip that we all think about, like a micro processor that goes in a car something, or if it’s resistors or capacitors, even the simplest we would call popcorn parts. Can you imagine going to a Home Depot and there are no nails or screws, or some odd sizes? That’s really what we’re talking about. And so the challenge is how do you design new products and keep going with the shortage of parts. You got to pick the parts and then … So what we’re actually telling customers to do is buy the parts first, then we’ll design it. And I know that’s completely backwards.
Tyler Kern (02:11):
Yeah. No, absolutely. Joe, what about you from your perspective at RoseWater? How has this had an impact on you and what you’re doing?
Joe Piccirilli (02:18):
I must tell you, I love Mike’s Home Depot analogy because I live in that world. I’ve had a product, and our current product has been on the shelf now for … we’ve been marketing it at almost five years. And I have an existing product. We’re selling it, of course, getting the parts for the existing product that everybody knows what that part list is. And I order them a year out, and it’s still painful. And when you couple that with, I have a new product in development that was supposed to be done 16 months ago, it’s the same thing. Had I could have just guessed what parts were necessary, I might be further along. And I hear the same thing.
Joe Piccirilli (03:07):
Mike was talking about nails and this and that, and I’m going, it’s the simple things like breakers. And then God forbid the microprocessors in my controllers. Forget those. It’s out of control. And it’s embarrassing from my point of view, as I sell this finished product and I keep promising people, “Oh, yeah. No, they’re guaranteeing me end of 2021,” which was only a year late. Now I’ll be lucky to get it done end of 2022. It’s a drag, and I’d love to hear how Mike’s experience is. Nobody has an answer. Every deadline is just a guess. It’s making me crazy.
Mike Wilkinson (03:51):
Well, I have some more insight now that we are acquired by TTI, which is one of the largest component distributors and probably the only one left that’s a stocking distributor. And my sister company is also a Mouser. And I’ve been going to a bunch of meetings, and we’ve had national sales meetings, and I’m learning more about the component business from the inside. And here’s the deal. When you get promised 52 weeks, that’s because the manufacturer of the part has told the distributor that. Well, the problem is then the manufacturer comes up short. So let’s say 100,000 pieces were promised, and then you only get 80,000 that were given to the distributor. Well, now they promised those 100,000 to a bunch of customers. And so what ends up happening is the actual employees of the distributor, your rep gets into these allocation fights. I won’t say it’s a brawl, but it’s a, “No, those are for my customer.” “No, they’re for my customer.” They’re just back and forth, and you have to fight for your parts you’ve already promised. And it’s a difficult process for them to decide who gets rations of parts. It’s a mess. I can’t express it enough.
Joe Piccirilli (05:12):
Well, I look at it and I keep going well, can we engineer around? And there’s only so much you can engineer around without compromising the quality of the product. And because of the market position that RoseWater holds, we are at the very top of the market with our product, and our tagline is RoseWater is simply the best. I can’t compromise the quality. I just can’t. And it really leads to difficult, difficult decision processes. And fortunately … Well, fortunately may be a bad choice of words. The entire business community is suffering this, and a lot of our business is new construction and remodeling. It goes into those. And of course, my projects are delayed. So with a little luck, we’ll get the timing right. But my great fear is one day, somebody will open up the dam and I will get all this product I have on back order and no place to put it because the houses aren’t done. Because people go, “Oh yeah, you can just engineer around it,” as if you can just do that like nothing. Well, no.
Mike Wilkinson (06:17):
No. And so, a little difference between housing and circuit board design is the following. If we’re missing one part out of the 500 parts on a board, we can’t build the board. We’re done. At least with a house … I’m trying to play that up. With a house, if I’m missing one toilet, I can still build the rest of the house. We just don’t have bathroom number six.
Joe Piccirilli (06:42):
In my case, my product goes in as part of the finishing of the house because I am the last piece. I protect all of the electronics in the house, so they want to put my piece in last. So it’s like, if the owners aren’t moving in because they’re missing a toilet, my product doesn’t go.
Mike Wilkinson (07:00):
Okay. All right.
Joe Piccirilli (07:00):
It’s weird. And it has been the most interesting two years of juggling. I’ve never seen problems like this.
Mike Wilkinson (07:09):
We’ve actually seen a record increase in new business. So what’s happening, it’s kind of like the toilet paper problem. Well, it’s worse because the toilet paper, nobody was using more. They just started hoarding it. So we’ve seen already, in the earliest parts of the pandemic, we saw people hoarding parts. Won’t name names, but some large, well known companies started hoarding their parts. They had a 12 month deliverable schedule, and they brought it all in and said, “Well, bring them all in now,” because they wanted to have possession so they wouldn’t have allocation problems later. They were smart in that respect, but they caused more harm to others. Well, fast forward. Now we’ve got people wanting to get development done and more and more products. And so we’re busy, busy, busy.
Mike Wilkinson (07:55):
But that said, you said, “How do we design something around that and keep quality?” Part of it is about kind of thinking outside the box on the design. So if we can have multiple parts that fit in the same spot or put their pad patterns as we call them co-located … In fact, I’m giving a talk on this here in a conference here in a month. And the different things you can do to engineer and get that product with multiple options, so I can work with, if you were talking about hardware store stuff, I can use this screw or that screw or that nail. It all fits in the same spot. Then I’ve got three ways to solve my problem if these other two aren’t available. And we [inaudible 00:08:39] that with virtually everything, and it’s not easy.
Joe Piccirilli (08:42):
No, I think that problem is extremely hard. And I give you huge props for being able to design and think that way, because I am running into the engineering roadblock where, “Okay, Joe, in order to get your design to do what you want it to do, this is your path.” And then the paths are described singularly. It’s the only path. And I don’t have enough background in parts acquisition, circuit board manufacturing, and all that to say, “Oh no, you can do better.” I don’t have that background. And I think that makes it very difficult for all of us on my side of the fence to not get really frustrated. What do you need? You’re 18 months late, and now you’re telling me you need another 12. I just can’t.
Mike Wilkinson (09:29):
The only saving grace I see right now is that the whole world knows there’s component shortage. And so, I don’t have complaints from customers saying, “What do you mean you can’t get parts?” They understand that’s the primary problem. But even with that said, I’ve got a couple of really good customers that just won’t order the parts. And one in particular, we’ve had to make significant design changes. We were done, done with regulatory, done. Go to production, and we’ve been telling them to buy parts all along, and they waited until then to order. And now they have these long lead times. So we’ve had to go and design out parts, design other parts in, go through another design cycle, more money, more regulatory expense. And this particular customer I’m thinking of, they still haven’t bought the parts. We’re going to do this again.
Joe Piccirilli (10:22):
Some habits are just impossible for people to change. And like you, for my finished product, the demand continues to grow. It’s amazing how many orders I have. And that’s the frightening part. If all of a sudden the attitude changes where people are no longer forgiving about lead times, or all of a sudden one part of this very delicate ecosystem gets finished, starts to meet deadlines, and my product has not met deadlines, then I’m in real trouble. And the hard part, and you’d think after all my years, I would learn this, but really trying to manage people’s expectations. I’m telling people now … I had a call yesterday, “Well, my project is two years out. When do you think I should order?” I’m going, “Yesterday.”
Mike Wilkinson (11:09):
Yeah. You’re late.
Joe Piccirilli (11:14):
You’ve got to send a deposit now. Sorry.
Mike Wilkinson (11:17):
Yeah. No, your project’s not two years out. Your project’s two and a half years out because you haven’t ordered parts yet.
Joe Piccirilli (11:22):
Yeah, exactly. That’s a better line.
Mike Wilkinson (11:24):
You’re late.
Joe Piccirilli (11:25):
I think I’ll be using that one. And I don’t mean to make light of it because it frustrates me on a daily basis, and I’m sure it frustrates my dealers and my clients and my end users. But there is no source of information. I don’t know about you, Mike, and you may know way more than I do here. Every time I read a report, every time God forbid, I listen to a news broadcast, nobody has any idea when this is going to lighten up.
Mike Wilkinson (11:55):
Yeah. Well, my boss, Michael Knight is well noted in the industry for following trends and keeping up with trends and knowing what the trends are going to be. He’s been following this very closely. And the very large companies hire him or bring him in to talk about supply chain and what’s going to happen, and even his crystal ball is looking at, we’re talking 2023, 2024 before we might see some reprieve. And part of this is that we can’t build new silicon fab, factories that make chips. We can’t do that until … It takes two, three years minimum and billions of dollars per plant. And so even though there’s some, like [inaudible 00:12:38] got some happening here in Texas, we’re not going to see the fruits of that until 2025, 2026.
Joe Piccirilli (12:44):
Wow. Wow. So even bringing on new fabs was decided too late, basically.
Mike Wilkinson (12:52):
Yeah. And they’re still doing it because they believe it’s not a bubble. If that doesn’t scare you … If it’s a bubble, then they wouldn’t build new fabs. But everybody believes we’re just going to use more and more and more chips. It’s incredible. And you look at the stats. My boss had a presentation last week, and oh my God, the trillion plus chips produced every year, just an insane number of parts.
Joe Piccirilli (13:21):
Well, I couldn’t agree more. I look at it … Again, my product is geared for residential and light commercial. And when I designed this product, it was designed with the projection in mind that houses are going to get loaded with microprocessors. And microprocessors like constant voltage, constant current. They last longer. They perform better, all of that. And I look at what has happened in a residential building from, call it the year 2000, when the only processors were built into your digital clocks with timers. And now all the lighting, all the shade, all the networking, all the environmental controls, even plumbing fixtures have microprocessors. So it is incredible. The growth of microprocessors is crazy. It’s just crazy. A house went from a couple to a few hundred.
Mike Wilkinson (14:21):
Yeah. Same with the car. The car’s got tons of processors that … we used to think about the engine computer, the ECU.
Joe Piccirilli (14:30):
Yes.
Mike Wilkinson (14:30):
That’s just one.
Joe Piccirilli (14:33):
And now I look at it, there is this trend in residential called wellness home, and it is a home with sensors everywhere that senses air quality by room sensors, water quality, 24/7. So it’s sensing all environmental factors within the house. Can you imagine how many more microprocessors and sensors that’s [inaudible 00:14:55]?
Mike Wilkinson (14:55):
Oh yeah. It’s insane. Well, the good news is that’s my world. And IOT, or internet of things, which is all this sensing and communicating back to the … is right down our alley. And so, we’re excited about a lot of this. And I think a lot of this is going to be fad like. Like, we’ve had people come to us with wanting to have wireless dental floss. Okay, [inaudible 00:15:17]. I’m not joking. So, that’s crazy. You know that. But other things aren’t as crazy, like a wireless toothbrush. You go, “Well, that sounds stupid,” but we’ve got them. And they’re not talking to a network, but they are for kids to get them into a two minute habit and play a song if they complete.
Mike Wilkinson (15:37):
And then when you’re talking about sensors throughout the HVAC system in your home, wow, we’re going to see a lot. And I think some of it’s going to … we’re going to end up dropping some of these and not be real popular, but it’s going to take a while to figure out. Same with the faucets. I was at a consumer electronic show in Vegas at the beginning of the year, and Kohler and everybody’s got their faucets. And they’ll fill up your glass, and they’ll fill up your baby formula thing to one ounce. It’s all Alexa driven. And in my opinion, and I’m a techy, I think some of that’s going to go away. I just want to turn the faucet on and fill up my cup. I don’t need for it to fill it eight ounces, because I’m going to slip and move my cup around and now it won’t fill the cup. And then I got to go turn it back on, and blah.
Joe Piccirilli (16:23):
You know, my children would call you a dinosaur because that’s what they call me all the time. But it is true. It will shake out that some of these things will be just fads. But there is no doubt that the number of microprocessors are going to continue to explode at an exponential level. I’m just shocked at how many things, like even to be able to wave your hand across the faucet to turn it on, which is kind of cool if it works. But that requires a sensor and a processor to do. You can’t do it without it.
Mike Wilkinson (17:03):
You hit on a key word, exponential. The group that I’m in within the TTI family with thousands of employees is the exponential technology group, and Michael Knight leads that. And his whole discussion about why the name and why exponential is just that. There’s this exponential growth of everything around us in semiconductors. And so that’s the mantra, is exponential. How do we get on there? How do we do more of this? How do we get more market share of this exponential growth?
Joe Piccirilli (17:34):
Yes. And there is no doubt that’s happening. There is no doubt. Again, as I was talking earlier, my product guarantees perfect power. You have my product, it doesn’t matter what the utility does. Doesn’t matter if there’s an outage. And now, the number of people who are interested in that because their houses have so many microprocessors in them, and the consequence of microprocessor failure has a significant impact on their lives, it is amazing, because people are out there, and they will invest significant dollars to make sure that their stuff runs all the time. And from what you are seeing, it’s only going to get worse because they’re going to have more and more and more and more. I think as much as I love all the technology, there are some times where I just miss a light switch.
Mike Wilkinson (18:29):
You were talking about the house. Here’s when it’s going to catch us. So we have the power grid, and we have three power grids in the US, the East, the West, and then of course Texas, which is really cool. But the problem is I don’t know whether we’re going to be able to keep up with that. We’ve been used to having these things called fuel stations, gas stations at every corner. And they are where we get a lot of power that goes into our vehicle. Well, now we’re talking about electric vehicles and we’re talking about chargers at home. Suddenly we have these big charging stations at home. Do we have the grid to support that? Your average home may have 150, 200 amp service into the home, but suddenly it might need to be 250, maybe more, 300. And if you do that, do we have enough power grid to support that? When people planned out a city, I’m not sure we thought through the idea that gas stations were all going to be co-located with your home.
Joe Piccirilli (19:24):
I think you’re absolutely right. I sat in on a discussion at a utility, and they took it from the standpoint of the transformers. Transformers in general in neighborhoods feed six to eight houses. If half of those houses has a car charger, the transformer will not be able to supply it. Not to mention, not just what’s feeding the transformer, the transformer itself will be overloaded. I don’t think anybody is ready for what is going to happen because where are you going to get all the power?
Mike Wilkinson (19:54):
Where are you going to get the copper to make those transformers?
Joe Piccirilli (19:57):
Yeah. And people go, “Well, we’ll just get it from the sun.” And I’m going, “Whoa, let’s do the math.”
Mike Wilkinson (20:03):
Yeah. And that’s a common misconception. I love solar. I love wind. Those are great, but solar only works half the time, thanks to our sun kind of rolling around and our planet moving around the sun, I should say. And then wind, it depends on when it’s windy, and it doesn’t always match our demand. So I think they’re going to be great power sources, but we’re going to always have to have something that we can control the dial and turn up, turn down as demand is required. In Texas. It could be a hot, no wind, cloudy day.
Joe Piccirilli (20:38):
That never happens in Texas, does it?
Mike Wilkinson (20:39):
No.
Joe Piccirilli (20:43):
It’s interesting because I start from the math. And if a solar panel is 20% efficient, the sun puts one kilowatt of energy per square meter on the earth under ideal conditions. So it’s one square meter solar panel, 20% efficient, which is a very good one, means in one square meter, you get 200 watts under ideal conditions. Next time you turn on a hair dryer, look at how much it draws.
Mike Wilkinson (21:11):
Yeah. 1500 watts.
Joe Piccirilli (21:12):
Yeah. 500 to 1500 watts. So a square meter doesn’t run a hair dryer, so good luck charging your car.
Mike Wilkinson (21:18):
Yeah. And then the more we can store. The magic would be if we had big batteries. And I know we’ve got batteries in cities. I know San Diego’s got a super mega, giga, whatever battery on the power grid. I don’t know much else about it. But still, I think in battery technology, geez, we’re way behind the curve if we’re going to go all electric. And I don’t mean this as a political statement or anything else, just it’s the science. And that’s probably an overused word today too, but it really is. It’s the math. It’s simple math.
Joe Piccirilli (21:53):
The technology is far away. And it’s so fascinating because on your side of the fence and on my side of the fence, where we are supporting all of this fabulous technological innovation, and we’re sitting there complaining that I can’t get enough microprocessors to me, even making houses more dependent on clean power, the other side’s just not catching up. And that’s problematic. That’s really problematic. It’s fascinating because you look at it in my world, because right now, I got to get this new product out. I got to continue to get supply of my current product. So I’m all about part shortages and everything else. But in the bigger picture, where guys like Mike Knight is looking, he’s got to be sitting there going, “Wow, there’s this confluence of available power, and what we’re producing isn’t kind of matching yet.” That’s a problem. That’s a real problem. And that’s a discussion for an entirely different podcast, I think, because I don’t think people pay attention to it.
Mike Wilkinson (22:55):
No. I don’t think the average person really is attuned to a lot of things like this.
Joe Piccirilli (23:02):
Tyler, we’ve left you completely out so far. Got anything to say?
Tyler Kern (23:06):
No, it’s better that way. It’s better that way. Trust me. No, this has been great. I guess my biggest follow up question is given the amount of time that both of you have been in business and the number of things that you’ve seen in your careers, how does this current situation compare to previous blips on the radar, spikes, low spells, whatever? How does this current situation compare? And what can you draw on from your previous experience going through other times that might be comparable or similar?
Mike Wilkinson (23:39):
Well, I’d say that for me, there was … I can’t remember what year it was, but the only other time in history that I remember being a serious semiconductor shortage was when a factory in Japan burnt to the ground. And it was the factory that made the plastic that encapsulated chips. So when you think about a chip back in the through-hole days and it had the little pin sticking out of it, that plastic was a certain kind of plastic, and it came from one factory for the whole world. And that was an aha moment, like, wow, I can’t believe we have one factory that pretty much supplies the world in that. And so when that factory burned down, nobody could make chips at all. And so that was my first eye opener to that. Since then, we’ve had a number of other shortages here or there, some factories, other factories have burned down, or we’ve had the earthquakes in Japan and China. But I don’t recall any other time in history for me, in 57 years, that that’s been worse. It’s definitely worse now than ever before.
Joe Piccirilli (24:47):
Yeah. I look at it and go, as much as the phrase is overused, this has been a perfect storm that I have never seen before. We’ve seen parts of it. Mike points out a factory burns down and we learned that boy, that was a sole source. That was a really bad idea. We’re not going to do that anymore. There’s a shipping strike, or there are not enough container ships. I remember shortages because they didn’t build enough container ships to anticipate the amount of freight that was going to go across the water, and then everybody air freighted. But we have had labor shortages due to COVID. We have had demand spiking up because everything wants a microprocessor now. We have had a situation where we have inflation where commodity prices are going through the roof, which makes things totally unpredictable. And we have factory shortages at the same time. So that confluence of events is like … I could take a piece of it and say, “Oh, that looks like 1976, or that looks like 1997,” that one piece. But I have never seen this convergence of factors all being negative. The positive also hurts, and that’s demand’s way up. Great. I can’t supply it. So, I would say this is pretty unprecedented.
Tyler Kern (26:12):
You’re both innovators in your respective areas. What advice might you have for other people who are innovators just the same or creators or entrepreneurs, that sort of thing? Do you have any advice for how people can navigate some of the challenges that you’re seeing today, whether it’s just be patient or anything else that you might be able to share?
Mike Wilkinson (26:32):
Run, Forrest, run. No, I don’t know. I think patience has got to be part of it, and then thinking outside the box. What about your products can you design differently maybe, or combine? Maybe you’ve got too many different products, too many different skews. And if you could combine into one, so that way, if you’ve got a shortage, it’ll affect everything, but at the same time, you’re not stuck with this product available today and that one tomorrow and then not that one. But you’re going to have to have a strategy going forward, and every business is going to have to figure out what that strategy is.
Joe Piccirilli (27:16):
Yeah. I would concur. I would also add, we as entrepreneurs tend to be very, very persistent because we are used to getting knocked down, and we stand back up and say, “Geez, that was a right cross. I know to block that punch.” But we have that perseverance, and you have to maintain it. But the other difficulty in the entrepreneurial world, as I see it, we are all fairly passionate. And sometimes we let our passion manage consumer expectation. At this point in time, you have to persevere, but you have to really be straightforward with managing your client’s expectations because it is totally unpredictable. And now I’m telling people, “Hey, look, if your project’s two years out, order now. And I’m not sure I’ll get it to you in two years, but if you don’t order now, I am sure I won’t.” And I caution people sometime on projects, “Look, I have this right now. Take it. I’ll bring it to your site. I will wrap it. And we’ll just leave it until my guys can come and install it. But if it’s in my warehouse, it’s fair game, so better in yours.” And that’s all I can say. There’s no magic bullet here. This is another obstacle, but it requires you to really manage your client’s expectations because none of us know the answer. We’re only guessing.
Mike Wilkinson (28:44):
Couldn’t have said it better.
Tyler Kern (28:45):
Very well put from both of you. This has been a fascinating conversation, and I’m so happy that I participated in so little of it because it was just better to hear the two of you guys talking about what you’re seeing in the industry and the unprecedented nature of the things that are going on right now. It’s been a pleasure. Joe Piccirilli and Mike Wilkinson, guys, thank you so much for joining us here for this special combo episode of each of your podcasts and sharing your insights with us.
Mike Wilkinson (29:08):
All right. Thanks.
Joe Piccirilli (29:09):
Mike, a pleasure meeting you virtually.
Mike Wilkinson (29:11):
[inaudible 00:29:11] meet you as well.
Joe Piccirilli (29:11):
Next time I’m in Dallas, let’s go to dinner.
Mike Wilkinson (29:14):
All right. When you’re in town, give me a buzz.
Joe Piccirilli (29:17):
All right.
Tyler Kern (29:18):
[inaudible 00:29:18].