The COVID-19 pandemic turned the semiconductor industry on its head. These compact sensors and microelectronics are essential to many of the products we use every day, including computers, personal devices, and automobiles. The pandemic upended traditional supply chains, leaving many companies scrambling to fulfill orders. Many of these problems persist today, but OEM suppliers are looking for a possible solution to the shortage.
A lack of semiconductors is hitting automotive OEM supply chains where it hurts the most. Find out why and how companies can remedy the situation.
What Led to the Shortage?
Semiconductor usage has been on the rise for many years, hitting new heights in 2021. But the recent shortage exposed the cracks in an already-fragile supply chain.
Before the pandemic, the semiconductor industry was expecting a major jump in demand thanks to the rollout of 5G, which can improve connectivity and the sharing of signals around the world.
Most of the world’s semi-conductors are produced in Asia, particularly China and Taiwan. Both countries had to close their facilities early on during the pandemic as the virus spread from east to west.
As COVID-19 swept across the U.S., demand for vehicles plummeted. Many people were stuck at home or unable to leave the house. Companies asked their workers to work from home, reducing the need for transportation.
With demand in flux, many automotive OEM suppliers held off on ordering more semiconductors. At the same time, demand for personal computers, laptops, smartphones, and tablets reached new heights. Semiconductor manufacturers started focusing on producing parts for the electronics industry.
However, demand for new vehicles rebounded faster than anyone could’ve anticipated. Many Americans were looking for an escape during quarantine, and driving was seen as a safer alternative than flying. As demand for new vehicles increased, many OEM suppliers found themselves without enough semiconductors to manufacture their goods.
Tensions between China and the U.S. contributed to the shortage. Former President Trump started a trade war with China and his predecessor has yet to undo many of these tariffs. Lasting resentments made it more difficult for U.S. manufacturers to obtain the parts they need.
Automotive OEM suppliers and automakers have also embraced what’s known as the “just-in-time” model. Instead of stockpiling parts onsite, they wait for the part to delivered at the last moment. This reduces the need for onsite storage and inventory organization, but it can also lead to last-minute shortages and delays.
Problems for OEM Supply Chains
The semiconductor shortage hasn’t been kind to automotive OEM suppliers. Many companies were forced to halt their operations until they could secure the parts they need to make their products. In other cases, companies found themselves paying far too much for semiconductors as prices spiked. Many manufacturers were forced to partner with new semiconductor suppliers to get their products out the door.
The shortage can’t be resolved overnight. The typical lead time for semiconductors may be four months. Switching to another supplier or manufacturer can delay the process by up to a year. Manufacturers have to adjust their products based on the client’s exact specifications.
These chips may contain sensitive intellectual property that may require alternations or licensing. Furthermore, new suppliers in the auto industry must go through a lengthy and complex qualification process, so the client can make sure their chips will work as promised.
These problems eventually started affecting consumers. The shortage made it more difficult to buy certain types of cars, especially those that use semiconductors for enhanced safety, performance, and entertainment. The personal electronics industry suffered a blow as well. Many consumers found themselves waiting around for a new computer or tablet as manufacturing times increased.
Possible Solutions to the Semiconductor Shortage
The shortage remains ongoing even as the virus starts to wane across much of the world. Companies have started using the following strategies to prepare for and mitigate any potential shortages.
Better Supply/Demand Forecasting
Companies are leveraging their data to make sure they have access to the parts they use every day. Many have created dedicated war rooms where experts compare supply and demand data to anticipate the future. This helps companies calculate how many chips they will need and how soon they will be available. They often pull data from multiple sources, including current estimates from the company’s supply chain, existing contracts with suppliers, changes to lead time, and other variables that can affect delivery times.
Companies are also keeping a close eye on the semiconductor industry. They are constantly reevaluating their options in terms of securing these chips on a regular basis. They may gather information about existing semiconductor manufacturers, while searching for partners that provide maximum transparency about their operations.
As more companies use semiconductors, competition among manufacturers will start to heat up. Semiconductor suppliers will need to improve their operations if they want to retain their customers over the long term.
Keeping More Inventory on Hand
The recent shortage is also changing the way companies think about their inventory. Instead of the just-in-time approach, some facilities will likely start keeping more inventory onsite to insulate themselves from possible disruptions to the supply chain.
Ordering semiconductors remains a challenge across much of the world. These items are some of the most valuable in the automotive industry. Companies need to make sure they are taking every precaution when moving and storing this precious cargo.
That’s why it’s best to use pallet containers designed to fit onto a pallet. This reduces the need for shrink wrap and ratchet straps that can damage inventory.
Wooden crates are perfect for overseas shipping. They will protect valuable merchandise as it moves from one continent to the next.
The semiconductor shortage isn’t going away any time soon. Keep this information in mind as your business tries to weather the storm. Also, read about the Benefits Of Energy Storage.