Chip Shortage Has Short and Long-Term Implications

 by Jim Lundy

The current global chip shortage is impacting more and more industries and it’s making people rethink their supply chains. While some think this is tactical, there are broader longer-term implications that many strategic planners are just now waking up to.

Why Is There a Chip Shortage? 

The reality is many manufacturers are in a constrained supply situation, due to the pandemic. However, a fire at a Renesas Electronics plant in Japan has helped fuel the shortage of semiconductor components used by auto to manufacturers. Renesas controls about 33% of the market for microcontroller chips used in cars.

Many manufacturers including semiconductor companies are racing to fill this void, but there’s also the issue that short term revenues and profits are being impacted particularly at automotive companies such as Ford and Honda, GM, and Nissan, just to name a few.

Is Just-in-Time Manufacturing Dead?

The whole idea of lean manufacturing, which has become very popular to the success of Japanese car manufacturers such as Toyota, appears to be coming to an end. Many procurement teams at automotive companies did not anticipate possible shortages of critical car components such a semiconductors, and changes in their shipping methods—from plane to ship—also impacted this. Many chips are on ships at Western US Ports, helping to accentuate delays.

Does the US Have a Strategic Issue with Semiconductors?

Given that the US only makes about 11% of semiconductors around the world, it would appear that the current shortage of chips for cars is a symptom of a bigger problem. 

It has been easy for semiconductor manufacturing to outsource manufacturing to providers such as TSMC in Taiwan, but it also now becomes a bigger issue if those providers go off line or won’t sell products to the US.

Intel Bring Manufacturing Back to the US

Intel, under the leadership of new CEO Pat Gelsinger, has committed to building $20 billion in manufacturing capacity in Arizona. This is a good start but the strategic implications of supply chains need to be looked at by both enterprises such as manufactures as well as governments where it can impact the entire economy.

Bottom Line—Supply Chains Are Strategic

The bottom line for enterprises is that, just as in the military, supply chains are critical success factors to anyone that manufactures products that require hardware. We read about the supply chains from a security perspective, but now it also comes down to inventory management and sourcing. Political risk to countries where manufacturing is heavy such as Taiwan should cause buyers around the world to look for additional sites for supplies of semiconductors.