Why is the Chip Supply Rebound Going so Slow?
It’s no mystery that the greater supply chain has been battered over the past few years by many challenges, including pandemic shutdowns, volatile consumer demand, geopolitical events and beyond. It has put tremendous stress on many industries, technology and electronics especially.
The global semiconductor supply chain, which not only saw a slowdown before the pandemic, saw those issues exacerbated even more by turbulent markets. The most significant contributing factor to the delays was the limited supply of semiconductors, materials, and related components.
The five major chip producers include China, Japan, South Korea, Taiwan and the United States. But it should also be noted those same countries are big importers, too. The pandemic and subsequent factory shutdowns hit many of those countries the hardest. So, on top of a limited supply that dwindled, mining and sourcing operations closed, manufacturing slowed to a crawl, and output was almost nonexistent.
That doesn’t necessarily explain why the semiconductor supply chain has seen a slow recovery after the fact. Those economic shutdowns are now over with for the most part and while the pandemic is still a concern, it’s not quite as impactful as it once was. Shouldn’t things be back up to speed by now? Moreover, with economic uncertainties on the horizon, consumer spending and demand have decreased. Why is the supply still lacking?
There is a natural delay in the global supply chain
From mining to manufacturing, general operations don’t just reboot overnight, even when people return to work. It takes time to get back up to speed and there are many reasons why. For starters, in manufacturing, supplies are necessary to develop and create, so with the rest of the market shut down or slowed down, those resources are more difficult to acquire. Fuel, machines and parts for repair are also more challenging to get, which affects productivity and output.
But the global semiconductor supply chain has a natural delay built in. The materials used are rare already difficult to source and acquire, and often expensive. Shutting down operations at the start of the chain affects every stage after and it’s not as though manufacturers can find another source — these are incredibly limited and rare resources. From start to finish, it takes an average of 18 weeks to manufacture a semiconductor.
Component needs have not decreased
Semiconductors, general electronics and related components are used in a wide variety of industries. There are obvious markets — like consumer electronics, automotive, and health care — but also commercial industries. Farm equipment and agriculture, modern computing, general lighting and even capital equipment are all fields that make use of and require semiconductors.
Although the overall demand has decreased and people tend to be buying less, these industries still need the parts and materials to continue manufacturing, operating and moving forward. In general, the need for a healthy and productive global semiconductor supply chain has remained the same.
Proactive, not reactive
Something the modern supply chain is trying to fix with data intelligence and smart technologies is the creation of a more preemptive guideline for the markets. In other words, one never really knows what’s going to happen until it happens. By then, it’s already too late. That’s precisely what occurred with the global semiconductor supply chain shortages.
Because no preparations were ready, the problem grew and grew and continued to spread down the chain. It’s not dissimilar from what happened with toilet paper during the pandemic. Almost no one could have foreseen that and panic buying made it worse.
Innovative technologies like artificial intelligence and machine learning will help predict incoming events to generate a more proactive and preventative system as opposed to reactive. As people have seen with the semiconductor supply chain, that’s something in need of advanced planning.
New operations abound
In response to the shortages, the United States — with the support of manufacturers and providers alike — has begun to roll out local component factories. This takes some of the stress off the imported channels but also ensures operations will continue should more events like the pandemic and economic shutdowns occur. With more sources, there’s more opportunity to supply the greater market. At the moment, though, it’s difficult to say whether or not these newer, local operations will make a dent in the supply chain shortages.
Will recovery pick up?
Admittedly, there’s too much going on socially, economically and politically to say one way or the other. However, the hope is that collective actions now will help support the global semiconductor supply chain in the near future. Modern technologies are helping to speed up and optimize operations. New factories and manufacturing plants are helping to boost output. Mines and materials sourcing operations are back in action, wheels turning maybe even faster than they were pre-pandemic.
Time will tell, but the outlook is positive and recovery seems to be speeding along nicely. The gap between supply and demand is closing.ourcing from alternative geographies.
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