As the year comes to a close we still are seeing shortages of various kinds. The electronics industry is one that is experiencing a particularly pronounced chip shortage due to the sheer number of products that utilize electronic components. This problem has persisted and evolved so let’s take a look at what happened to get us here and some strategies going forward.
The global Covid-19 pandemic caused many to spend more time at home, creating a lowered demand for cars and increased demand for consumer electronics like laptops for working from home. Demand for new cars however hasn’t stayed low, instead as time passed demand for cars came back up. However, it’s estimated that around 40% of the value in a new car is related to its electronics. While the demand for cars was in a valley, much of those electronics supplies were committed to the consumer electronics market, leaving automotive manufacturers high and dry. A challenge in engineering is that most products are assemblies of assemblies requiring every single component to be present and working to deliver a functional product. A full car can have every element assembled and ready, but a single capacitor missing from an engine control computer can render that computer unable to run and an engine that at least can’t run optimally. Even when all components of a product are accounted for, a supplier still needs to worry about raw material shortages affecting the availability of shipping containers to ship to their customer, creating more delays. In some ways, these shortages are due to the pandemic, but in many ways, there was already a problem brewing. Many companies operate using a just-in-time or built-to-order model in which little extra product is kept in stock, which is great for financial efficiency, but this creates a situation that sharp demand fluctuation or sudden supply loss can’t be dealt with quickly. Even without events like the pandemic creating this fluctuation between the auto and consumer electronics industry, we will still have problems due to more normal causes like fires reducing industry supply of fiberglass for PCBs and automotive semiconductors. Supply chains are complex and have long linkages depending on the industry and product, and disruptions at any of those links can have effects down the line that slow the delivery of the end product. Thankfully many components that were part of the shortages have eased up, but difficulty in the supply of capacitors and discrete semiconductors remains.
Many sources agree that these electronics shortages are going to be here for at least another 12 months, but there are some things that can be done to increase supply-side agility and allow companies to quickly pivot and react to supply chain problems. Companies can innovate technologically by designing products with a focus on “design-for-disruption” meaning designing products with a game plan for redesigns that allow using alternative parts to fill in for unavailable parts. This allows a company to deliver the same resulting function using varying materials and parts. This will also increase the need for quality assurance tools to ensure new part supplies still have good quality and are not counterfeit. Operations can be improved by moving from a “cash-is-king” model to a “stock-is-king” model by increasing the amount of standby product stored on shelves just in case unexpected events happen or by making sure there are multiple sources for components and materials with lots of material in stock. Either way, flexibility and adaptability of the industry is best achieved at the level of the industry ecosystem. Companies will need to collaborate much closer and more transparently with each other so that everyone can fully factor in all relevant information and plan for the longer run. This will also help to maintain strong relationships with suppliers, partners, and customers.
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