Chip shortage lessons

From the October 2021 print edition

Who knew something so small could cause such trouble?

Michael Power is editor of Supply Professional magazine.

While microchip supply should rebound later this year, the shortage that’s recently disrupted manufacturing will likely continue at least into next year and, some experts fear, into 2023.

The problem, cutting across multiple industries, shows how one issue can have knock-on effects for months, even years.

Microchips are used in a range of goods employed across industries and by private consumers. They’re essential in computers, smartphones, tablets and other technology: GPS tracking devices, televisions, identification cards, ATM machines, pacemakers and others.

They help to make vehicles more efficient, sustainable and connected. The shortage has therefore hit the automotive industry hard, with US car production dipping 6.6 per cent in June.

There are multiple factors exacerbating the shortage. COVID-19 has slowed shipments of many goods globally. There was also an unforeseen jump in the demand for electronics during the pandemic. People and businesses alike began buying laptops, servers and other equipment to service remote work.

This has led to increased demand. According to the Semiconductor Industry Association, global semiconductor sales increased 6.5 per cent in 2020 alone.

But that’s not all. The blockage of the Suez Canal by the Ever Given, along with cold weather in Texas in February that forced Samsung Electronics, NXP Semiconductors, among others, to shut temporarily, have also contributed to the chip supply crisis.

So, what can supply chains learn going forward from the shortage? The following points can apply not only to microchips but other goods.

One lesson might be to look at what an acceptable level of inventory is. In recent years, many companies have relied on lower levels of inventory to stay nimble and efficient. But holding inventory at such low levels may mean shortages when a crisis hits.

There will also be a heightened emphasis on resilience and managing risk in supply chains. While risk has always scored high among supply chain practitioners, it has moved even more resolutely into the spotlight recently.

And while it’s challenging to predict risk accurately, as our story on the topic makes clear (see page 18), awareness of potential risks and working to manage them can lead to stronger supply chains. Cost will stay important but building resiliency can save money in the long run while contributing to business continuity.

A heavy reliance on goods manufactured overseas can also create challenges. Domestic manufacture of PPE, for example, may have meant a more readily available supply during the pandemic. The same could be true of microchips. The Biden administration in the US has proposed $52 billion to boost domestic chip research and production. Stronger domestic manufacturing of essential products could mean more resiliency in supply chains.

The microchip shortage may continue for some time. Although we’ll deal with the effects for a while, we can also use the situation to learn how to bolster supply chains going forward.