Not too long ago, I bought a new laptop, and I had some specific ideas in mind for its hardware configuration when I started shopping. But it quickly became obvious that they didn’t have what I wanted. Eventually, I settled on a model with the previous year’s processor, and it does a fine job. However, I couldn’t get what I initially wanted because of the global semiconductor shortage.
The chip shortage and the global supply chain problems are big news these days, but do you realize how much the chip shortages impact supply chain resiliency? When one semiconductor chip is unavailable, it affects the next chip in line like dominos. Similarly, this process continues until an entire row of semiconductors is knocked over. Let’s look at this problem, its results, and how original equipment manufacturers guard against these problems to protect the production of their valuable electronics.
The Problem and the Results
Most of the current supply chain problems can trace their starting point back to the beginning of the COVID-19 pandemic. Truthfully, many supply chain problems already existed, but it took a global problem like the pandemic to trigger their emergence on a large scale. As an example, let’s consider the automotive industry. Car sales rapidly fell off due to the pandemic, which caused the semiconductor industry to re-tool their foundries and chase more active business. Simultaneously, the chip makers were hit with a plethora of operational problems:
- Labor forces were affected as workers weren’t able to report for work.
- One leading chip maker’s facility was heavily damaged due to a fire.
- Shipping bottlenecks changed distribution patterns.
Then, the unexpected occurred. The automotive industry rebounded, catching the semiconductor industry off-guard. At the same time, chip makers had to continue supplying consumer electronics to support a locked-down population working and schooling from home. This situation produced some unexpected results:
- Products, such as popular cars and trucks, were built with missing features and higher price tags.
- Some companies invested time and effort re-writing their product’s software to use older chips they already had in stock.
- In the case of the automotive industry, the higher prices and unavailability of newer cars are driving up the value of older used vehicles.
It has been predicted that the automobile industry may make up to five million fewer cars than expected. The semiconductor industry is trying to respond, but it can take up to 2 and a half years to build a new chip foundry. And all the while, the chip shortages are having a lasting effect on the global supply chain, which we will look at next.
How Basic Chip Shortages Impact the Supply Chain Resiliency
As we have seen, the shortages of the latest microcontrollers and other advanced components are affecting new products that cannot use the advanced features for which they were designed. While this is a serious problem, the overall semiconductor shortage is a much bigger issue than most people realize. In addition to the advanced parts, new electronics also need basic components for power management, display control, and performing a host of other necessary functions. Unfortunately, these basic semiconductors are also in short supply. Meanwhile, many larger corporations that bought up the available stock of these chips are now running out, causing consumer electronics to escalate in price.
The government has made some effort to help, especially with the automotive industry, where they have been forging direct relationships between semiconductor manufacturers and carmakers. While this has helped with relief for new car production, it has caused a lot of frustration among other manufacturers, such as the makers of medical devices. These companies and other industries are also protesting prioritizing one industry over another. Added to that are additional problems, including shipments of components stolen by smugglers and the rise in counterfeit parts finding their way onto PCB production lines.
There are a lot of opinions on when the global chip shortage and supply chain problems will be over. Many predict this will continue into 2023 as overwhelmed supply lines extend part lead times. Add to that the continual advancement of technology like 5G services that require new electronics to support it, and the problem continues to grow. The key is to find ways to work through these problems now. Fortunately, OEMs do have some advocates who can help.
How Can OEMs Protect Themselves
One of the best things that an OEM can do to combat the challenges of chip shortages and how it impacts the supply chain is to partner with an experienced PCB contract manufacturer. A good CM will have engineering and procurement specialists on their staff to help you work around the problems posed by chip shortages. They can examine your bill of materials for high-cost or long-lead-time parts and leverage their network of part manufacturers, distributors, and brokers to get you the components you need. Their engineering teams will also be able to work with you on your design to find ways around component problems with alternate parts or re-designed circuitry. For your part, there are a couple of things that you should consider that can help:
- Work with your PCB CM early on in your design cycle so they can identify at-risk components in your design and recommend alternative parts or redesigned circuitry.
- Get the CM’s procurement team your part information as soon as possible so that they can begin the process of sourcing components for your build. This step will allow them to work through long lead times and find alternative sources to get you the best prices.
At VSE, we have a staff of procurement specialists, component engineers, and design engineers that regularly work with clients like you to find the best solutions for their projects. We understand the challenges that the current chip shortages and supply chain problems pose for your design, and our goal is to find the best way to make your project a success.