The global semiconductor shortage which began during the COVID-19 pandemic as a result of global supply chain vulnerability and a demand-supply imbalance has continued well in 2022. Many supply chain bottlenecks often begin with a diminished supply of components. In this case, an already weakened supply chain has been worsened by an increase in demand for components of semiconductor chips.
Chip shortages shut down automotive production lines in early 2021 thrusting the semiconductor industry into the limelight. Consumer electronic companies joined the discussion with concerns about the global supply chain leading to mainstream awareness of long-term issues that have plagued the industry for decades.
- The COVID-19 pandemic - which disrupted global supply chains had an adverse effect on the supply of semiconductor chip components.
- Rising use of semiconductors - in high-tech cars including electric vehicles (EVs) has increased demand for chips, from the automotive industry in particular. Auto manufacturers reduced their orders for semiconductor chips early in 2020 as vehicle sales slumped.
- High industry lead times - for producing semiconductor chips mean it could take up to 26 weeks to produce a finalized semiconductor chip. Moving a semiconductor product to another production line adds an additional 24 weeks to the production timeline while switching manufacturers can take up to one year.
- Complicated production procedures - result in an inelastic manufacturing timeline for every semiconductor manufacturer in an industry that remains unsuited to swings in demand.
The apparent lack of visibility beyond the first few layers in the global supply chain is a significant vulnerability that has been exposed by the events of the last two years. While the supply chain and logistics industry has a clear grasp of the big picture, many original equipment manufacturers (the auto industry in particular) are not able to anticipate or prepare for the next disruption. Companies must be aware of the core tenets of supply chain and logistics that enable resiliency.
- They must be responsive - by monitoring inputs such as customer order volume, commodity prices, and freight rates in real-time to anticipate disruptions.
- They must diversify their supply chain - to detect and mitigate key bottlenecks. Manufacturing systems have to be configurable enough to maintain operations during a crisis.
- Companies must build resiliency - into their business structure while enabling processes that incorporate constant improvement.
For two years now, the many industries dependent on the semiconductor supply chain have remained in reactive mode. This supports the idea that improvements are needed in supply chain visibility to improve short-term and long-term outcomes. To build a robust supply chain, companies must look at the wider network of suppliers and plan for potential scenarios that could disrupt the system.
Changes are needed in manufacturing processes, policy, intellectual property and international relations to adequately prepare for future supply chain disruptions. The Defense Department, for example, is not exempt from the effects of disruptions like a semiconductor shortage. Cellular devices, laptop computers, fighter jets, and IoT technologies used by military and civilian personnel all have semiconductor components.
However, the surge in demand for electronic devices and their chip components since the start of the pandemic has highlighted numerous supply chain problems and vulnerabilities for the United States. The global chip shortage was just a warning, now we must chart a way forward that builds supply chain resiliency and enables better outcomes for manufacturers, their suppliers, and distributors.
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