Right now, the world is going through a worrying shortage of semiconductors, also known as computer chips, due to an unforeseeable sequence of events. Events such as fires, drought, storms, trade wars, and of course, a global pandemic. There has also been an increased demand for computer chips as the global pandemic has changed the way we entertain ourselves, which can be seen in the increased popularity of activities like gaming. All these circumstances have accumulated to create a perfect storm.
Computer chips are now in almost all technology we own. This includes fridges, washing machines, cars, and even your watch. That’s without mentioning the obvious, such as computers, gaming consoles, and TVs. The fact is manufacturers can’t keep up with demand even if they work 24/7 for the next two years. So what’s a geek to do?
Supply Chain Problems
A resilient supply chain is every logistics manager’s dream and, unfortunately, the dream has not lived up to reality in this case. Traditionally companies maintain low stock levels to keep overheads down. At the time, this tactic seemed like a sensible choice. However, this tactic would require addressing as soon as stakeholders became aware of problems relating to manufacturing.
One indicator of a problem should be enough for any forward-thinking company. Executives with their ears to the ground must have known about trade wars, Brexit, for instance, was five years in the making. Enough time, you would think, to make adequate provisions. But that is easier said than done.
Brexit is a problem, but it’s not the tech industries’ main problem as chips are made in Taiwan, and most consumables manufacturers base themselves in China, Korea, Taiwan, and America. It was the trade war between the US and China that caused one of the most significant problems. Problems backdate to the Trump presidency, with the main catalyst being the trade blacklisting of companies like Huawei because of national security fears.
Increase Output to Meet Demand
If only it were as simple as increasing output to meet demand. To make computer chips, you need a vast amount of water, and water is the one thing Taiwan does not have. Drought has crippled the country to such an extent that water is being shipped in. Several Taiwanese companies have started using trucks to deliver the 156,000 tonnes of necessary water per day. Although water is recycled and the top-up required is only 15% of all water used, it’s still a truckful too far in a country plagued by water shortages.
That’s not all, fire at a semiconductor factory in Japan caused further delays, and the unseasonable cold weather in Texas stopped US manufacturers in their tracks. All that manufacturers needed was a plague of locusts to finish things off.
No sooner spoken than materialized. The locusts came in the form of a worldwide pandemic that closed the doors on everyday work practices making manufacturing three times slower than usual. Transport systems stopped, and the world went online to distract itself from reality. The perfect storm was complete.
Events of the last few years have been unbelievable, and the knock-on effect will continue to have a lasting impact. But exactly how long will it last, we hear you say?
How Long Will It Last?
Analysts say it will take up to 12 months to catch up and get back on track; after that, another six months to get stock levels back up to an average level. With backdated orders taking precedent and there is a hefty backlog as 90% of current stock is reserved.
Plans are afoot in the US and China for new manufacturing plants. Billions of dollars have been invested worldwide. It is reported that in February this year the US president Joe Biden signed an executive order for $37 billion to pull up the slack and increase capacity to fill the order book. But even with all these good intentions getting back on track will take time.
Hindsight is a Wonderful Thing
Industry data shows that manufacturing has been at total capacity for some time. Therefore rational thinking says experts should have put a strategy in place before now, or at least you would have thought so? Not having an adequate buffer is not a good thing, but not having any barrier to wave off the perfect storm is a tragedy.
When the chips are down, as they are now, it would be advisable to get logistic managers off their consoles and back to resilient supply chain management. Trade wars are commonplace and extreme weather is now a new norm thanks to climate change. Chip famines are not unusual, and history is there to teach, making shortages of any kind avoidable.
The take away, for now, is that things aren’t going to get any better in the short term. It could take a minimum of 12 months for stocks to get back to 2019 levels, but 90% of those stocks are spoken for. Buffer supplies will not be created until the US and China have invested in new infrastructure and repaired the bad blood left in the wake of the Trump administration.
Tech will get more expensive, but when did it get ever cheaper? Perhaps there was a brief moment in the early 2000s when washings and TV stopped costing an entire month’s salary. Since then, the supply and demand situation has done what it always has and hit the consumer’s pocket.