Global chip shortage is hitting close to home

3 years ago 395

Manufacturers, suppliers and companies must rethink their supply chain operations, experts say.

When Gail Sheldon got a call in early June asking if she wanted to turn in her 2018 Nissan Rogue early, she and her husband, Todd, went to the car dealership in greater Boston to get pricing information on a new lease. The couple still had 7,000 miles left on their current lease and decided to hang onto the car until their lease ended in July.

By the time they went back, the price for a new, three-year lease had gone up $69 a month. "We were stunned that after only six weeks the price could have changed that much," Sheldon recalled. So they went to another Nissan dealer and were quoted pretty much the same price.

"We kept thinking we could negotiate, but it was a hard and fast number … both places said they can't get cars because they can't get chips—there's just no supply across the board," she says.

SEE: Global chip shortage: How manufacturers can cope over the long term (TechRepublic)

The global chip shortage is hitting close to home. Even with the passage in June of a bill to increase federal investments in domestic semiconductor manufacturing, by some estimates, the shortage is still expected to continue through the second quarter of 2022, said Gaurav Gupta, vice president, semiconductors and electronics, at Gartner.

While a balance in supply and demand prompted a better inventory outlook in the second quarter of this year, the "recovery path is similar to what we had projected earlier," Gupta said.

He added that this is a macro view—and the impact could vary by device. "We have also seen some industry verticals working with the government to put pressure on foundries to help them through wafer allocations," Gupta said.

Capacity for 8-inch wafers, a key component of chips, remains tight and is expected to be until the second half of 2022, he said. Most fab capacity expansion is for 12-inch fabrications, Gupta said.

"Chip industry players are promoting pre-investment from customers to ensure their fabs are loaded in the long-term and they can leverage those early payments for fab capacity expansion," he said.

The passage of the CHIPS Act means there is momentum in the U.S. to bring back domestic chip manufacturing with federal support through funds and subsidies, he said. "TSMC and Intel already have fabs planned in Arizona. Intel also announced investment in their advanced packaging facility in New Mexico," Gupta said. "GlobalFoundries is also expanding the Malta fab. So, there is definitely progress—but these are all long-term ploys—not really solving current chip shortages."

Other supply chain woes

Also compounding the situation is strict quarantine measures following the discovery of coronavirus among staff at China's Yantian International Container Terminal, one of the world's busiest container ports, in May.

The terminal serves an estimated 100 ships per week. "The ongoing disruption and quarantine measures will have continued implications for global supply chains and is forecast to be even more disruptive than the Ever Given [container ship] blockage in the Suez Canal earlier this year" because of the length of time that the port has been in quarantine," said Brian Alster, general manager, third-party risk and compliance, at Dun & Bradstreet.

This incident "reinforces the reality that comes with the interconnectedness of globalization and our reliance on each other as contributors to the global supply chain," Alster said. "As a result, companies have developed a higher level of dependency on suppliers and third parties from other countries, and that dependency is highlighted when a link in the supply chain is impacted."

He added, "The Yantian port congestion plays as yet another reminder to businesses to invest in data and technology to create an agile, geographically dispersed supply chain that can quickly pivot during unexpected events."

The automotive industry remains the most heavily impacted vertical, said Jack Buffington, a professor of practice in supply chain management at the University of Denver.

Demand continues to outpace mitigation of supply, he said. "You'll start to see things get better through natural supply and demand as prices go up and people won't replace cars as quickly."

Like Alster, Buffington said the traditional focus on lean inventories and productions in supply chains must change. "We've always been able to run that way to keep prices down but the world's more complicated now with trade wars, pandemic, climate change—that will probably change how companies look at their supply chains."

Many will likely carry more inventory and have nearer-source production, he said. This translates to higher prices for consumers.

"Inflation is not just about the pandemic; that was the trigger related to what will happen in the future in the supply chain," Buffington said. "We need to have more resilient supply chains and [companies need to] carry more inventory so if another pandemic happens, we don't run out of materials."

As for Sheldon, she and her husband bit the bullet and recently leased a new Nissan Rogue.

Executive Briefing Newsletter

Discover the secrets to IT leadership success with these tips on project management, budgets, and dealing with day-to-day challenges. Delivered Tuesdays and Thursdays