High Tech

The long view of the chip shortage

June 23, 2021

In brief

The global semiconductor chip shortage has disrupted many manufacturing industries and constrained supply chains.
Preparation for future chip demands will depend on examining four short and long term strategies.
Due to priority shipments of the COVID-19 related items , global air cargo capacity declined a staggering 20% in 2020.
We have identified elements that created the perfect storm of factors that contributed to the global chip shortage.

Global chip shortage problem may be 'long term'

Industries of all types are feeling the hit to manufacturing production because of a shortage of semiconductors needed for their products. Syed Alam, Global Semiconductor Lead gives his insight into the factors that contributed to the shortage and possible solutions to help businesses build resiliency into their future supply chains.

Hit by a perfect storm

Automotive, smartphone and consumer tech manufacturers have felt the strain of reduced chip availability. In fact, many manufacturers have been forced to delay product launches resulting in expected revenue loss.

Electronics demand goes into the stratosphere

As online sales boomed and the demand for electronics surged, consumer electronics lead its growth and is projected to continue to grow by 2023.

Long lead times

Strong demand drove an imbalance in supply. Building additional capacity requires 6-9 months, billions of dollars and is not a quick solution.

Logistics constraints limit chip shipments

Chip shipments themselves were delayed due to flight reductions, putting further pressure on air cargo capacity that saw a decline of 20% in 2020.

The new normal?

This is not new for semiconductor companies, like the 2011 disaster in Japan. This is not a one-off issue due to the rising demand for electronics.

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Syed Alam interviewed about the global chip shortage.

Accenture’s Global Semiconductor Lead, Syed Alam joins Cheddar’s Kristen Scholer to discuss the role of the global semiconductor shortage on impacted.

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Strengthening supply chain today

These steps can help mitigate risk and minimize disruption to business and operations that can set the stage for short and long term impact requiring greater investments in time and resources.

Know what chips you use, and where they come from

A record of multi-tier suppliers can help identify trouble areas in the supply chain, such as where are the concentration risks.

Learn current time to failure and time to recover

It is important to understand the impact disruptions will have on time. Consider a stress test to assess risks in the supply chain.

Step into the supplier’s shoes

Companies should ask themselves how attractive they are to suppliers. Organizations must consider how to improve their attractiveness as a client.

Strengthen analytics control tower capabilities

Centralize supply chain monitoring to gain insight and put a spotlight on potential problems like limited capacity or geo-political tensions.

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Reimagining supply chain resilience for the future

Looking at long-term preparations, companies can build supply chain resilience into their planning and manufacturing processes by evaluating these key considerations.

Know all your supply competitors. Foundries are serving businesses across different industries and the threat of supply competitors gaining capacity may be greater than direct competition.
Rethinking supply networks and co-location. Companies should give serious consideration to not only multi-sourcing strategies, but also to a hybrid of in-sourcing and out-sourcing.
Time's up for just-in-time. Built on the just-in-time principle, semiconductor supply chains are experiencing that working in this manor can have a devastating impact.

Limited number of wafer fabrications companies supporting the semiconductor ecosystem.

Have a clear understanding of the competitions of available resources for chip fabrication.

This inverted pyramid shows the descending amount of semiconductors companies to fabrication houses, depicting the competition that is created when semiconductor companies rely on same fabs that their competitors are using.

The current shortage offers essential lessons for any company that relies on chips for their products. It is vital to understand that the whole value chain goes deep and companies need insight into the whole process from fabrication, assembly and packaging all the way to the substrate factory.