Chip Shortages Add To Supply Chain Beating

Everyone knew - early on - that as the economy rose, demand for durable goods and capital equipment would get back on track. The post-pandemic supply chain, however, keeps taking punches from a variety of unusual sources, including stuck ships blocking canals and code red water issues in Taiwan that threaten foundries' ability to produce chips. OK, not potato chips - but we got your attention, right?

Early in the second quarter of 2020 it was pretty clear to most manufacturers that the pandemic would create supply chain issues in all of 2020. As the pandemic numbers grew and the timeline was repeatedly stretched, it became obvious that the longer term effects would be around well into 2021. 

Then chip makers announced they could not keep up with demand.

Then there was a fire at chipmaker Renesas in Japan.

Then Taiwan hit a 'red alert' water crisis, threatening chipmakers' factories.

And one of the biggest container ships in the world ran aground in the Suez Canal. Actually, as 2021 would have it, across the canal.

When Intel committed $20 billion to build a new fabrication facility, they were clearly indicating that their data showed that the issues would remain well beyond the construction and on-lining of that facility. As in years longer. The other unpredicted events only exacerbated the situation.

Car plants are closing temporarily because they can't get specific chips needed to manufacture the modern automobile. 

Things are a mess.

The events listed above are really just some of the big stories in the news - there are certainly other raw materials and finished goods that are extremely constrained. 

If you are a manufacturer that relies on the global supply chain, it's likely time to get a team together to analyze the latest information regularly. This holds especially true if your products require chips (the silicon kind) or PCBs. There are some things you can do to minimize the issues for your specific products.

• Use regular, formal 'war room' meetings to keep teams up to date.
  • Include sourcing, engineering, quality and management if possible.
• Work with engineering to find alternatives to have additional replacement options that may be less constrained.
• Work with your supply chain;
  • Give your suppliers flexibility where possible to use alternate parts.
  • Place orders for known risk parts as soon as possible.
  • Remember they are managing these issues for other products / customers.
• Consider placing longer term commitments to cover your known needs.
• Work with your supply chain to contain price increases where possible.

Depending on how your business operates, you may already do these things. The supply chain will be challenging for quite some time. Hopefully 2021 will see things smooth out for the most part - but it's hard to know when problems will subside entirely. Intel clearly thinks it will be a while.

The bottom line

Capital equipment manufacturers should also consider stocking programs for an assortment of subassemblies, with a special emphasis on long lead time components. 

We realize that our OEM partners value our logistics management, and we plan to continue our vigilance through 2021 and beyond. It is critical that forecasts are updated and orders are placed as early as possible.

The GMI Solutions Team

Links to more information on select events mentioned:
Fire at Renesys plants (Japan Times)
Suez blockage (Reuters)