The semiconductor industry is experiencing a shortage of both product and production capacity and is expected to continue well into 2022 and potentially beyond. Majorly, the demand for advanced CMOS chips skyrocketed with the explosive growth of smartphones and the Internet of Things (IoT). The shortage has resulted in double-digit price spikes at leading chip foundries, a more than 30% decreased demand in consumer electronics between 2022 to 2023, higher operating costs, and lost multi-year revenue priorities from companies that rely on chips to make devices work.
The reasons for this include increase in demand for electronics and an increase in e-commerce due to the COVID-19 pandemic and the US-China trade tensions. Additionally, many companies stockpiled chips in anticipation of supply chain disruptions caused by the pandemic. This led to a shortage of chips for manufacturers. To deal with this, alternative technologies can be applied and companies in the semiconductor industry can engineer their way out of the chip crisis by adopting some of the following solutions.
1. Design for availability and resilience
This engineering approach involves designing products that are more resilient to supply chain disruptions. It can include using a variety of different components, so that if one component becomes unavailable, the electronic or engineering product can still function using a different component. Additionally, engineers can design products to be more modular, so that different components can be replaced or upgraded more easily.
2. Reuse old components
The semiconductor industry can look for ways to reuse old components, rather than purchasing new ones. For example, the companies can leverage traditional parts and electronic components and develop new generation alternatives. This can include refurbishing or remanufacturing old parts, which can save money and reduce the need to purchase new components.
3. Avoid “just in time” ordering
“Just in time” ordering is a practice of ordering components and materials only as they are needed, rather than keeping a large inventory on hand. This can be risky during a shortage, as it can lead to a lack of components and materials when they are needed. The semiconductor industry can avoid this by keeping a larger inventory on hand, or by using a “pull” system, where components and materials are ordered based on actual usage rather than projected usage.
4. Leverage AI and ML to add intelligence to supply chain management
The semiconductor industry can use artificial intelligence (AI) and machine learning (ML) to improve supply chain management across different engineering and electronic firms requiring the chips. Leveraging AI and ML can include using predictive analytics to forecast demand, and identify potential supply chain disruptions. Additionally, AI and ML can be used to optimize logistics, and to automate the tracking of components and materials throughout the semiconductor chip supply chain.
5. Re-design products to increase inventory
Semiconductor companies can redesign products to use alternative chips that are not in short supply. This can include using chips that are similar to the ones that are in short supply, or using a different technology altogether. With such redesign, a higher inventory of chips can be achieved by keeping more safety stock at hand.
6. Diversify and optimize the supply chain visibility
Companies can try to diversify their supplier base so they are not dependent on a single supplier, and optimize their supply chain to minimize the impact of the chip shortage. This can include working with multiple semiconductor suppliers, and implementing real-time tracking and monitoring systems to keep tabs on the status of orders.
7. Develop in-house manufacturing
Companies can invest in developing their own chip manufacturing capabilities. This can include building their own manufacturing facilities, or partnering with other companies to jointly develop chip manufacturing capabilities. This can help to reduce dependence on external suppliers and increase control over the supply chain.
Developing a semiconductor plant is costly and demanding. More so, the semiconductor industry is highly dependent on innovation and investment cost. Every effort must be made to secure new markets and meet the demanding requirements of customers. As such, the development of a variety of alternative sources of supply will allow those who are currently experiencing shortages to pursue their own alternatives.
