Chip shortages have uncovered some fundamental problems with the way supply chain management works or does not. Years of experience in supply chain visibility tell us what should be done about it.
The Pandemic has exposed multiple weaknesses in the supply chain – how to prepare?
We have seen numerous stories about the microchip shortage and its effect on a wide range of industries, perhaps most notably automobile production. Unfortunately, this shortage, and others like it, were not one-off COVID-19 side effects. They uncovered some fundamental problems with the way supply chain management works - or more accurately - does not work. Many years of experience in supply chain visibility and predictive analytics have given us a unique perspective on the situation, and what should be done about it by enterprises.
It's not just chips
While plenty of attention has been paid to the problem of chip shortage, solutions and strategies for avoiding unexpected shortages are harder to come by. Semiconductor producers are trying to increase their output, but they are unlikely to solve the shortfalls which will continue to hamper the production of many consumer products, from automobiles to home appliances to PCs. Some of our thinking on the persistence of chip shortages is included in this blog.
Chips are merely the beginning. Next could be a shortage of rubber according to one industry source. After that, it could be plastics, steel, and so on. The point is that the individual instances of shortage point to a weakness in the way the manufacturing supply chain currently operates.
By its very nature, “just in time" means that the successful use of this business strategy depends heavily on precise coordination between manufacturers and their suppliers. Because there is no room for disruptions, there are significant negative outcomes if even one of many elements is delayed.
The effect of chip shortages on automotive production has been particularly visible (and particularly bad) because industries like the auto industry have clung to just-in-time delivery due to their focus on the short term. In addition, many vehicle manufacturers do not buy chips directly; rather, they source them through multiple layers of supplier tiers, each of which is traditionally unwilling to speculate and bear the financial risk associated with customer refusal to make order commitments 12-24 months in advance.
They had not suffered previously when the secondary chip markets covered any shortfall. The longer-term implications that supply chain failures might bring were not enough to shake them up. Until now.
The COVID-19 pandemic exposed the vulnerability of global supply chains with extensive dependence on China. In addition, the political climate everywhere is making countries look more inward. With all of these trends, supply chains and their domestic components or lack thereof will also contribute to rethinking on the part of the supply chain professionals.
At Tada, we think of the supply chain as a supply network - one which relies not on link-by-link connections, but on a broad array of supporting relationships, which is best managed through deep analysis of patterns, histories, current needs, and smart projections for the future. Using data and artificial intelligence tools, it is possible to be prepared for unusual changes in global conditions, markets, and customer behavior.
Whether planning for microchips, rubber, or any critical manufacturing component, supply chain decision-makers must know what is required to make and move their products; know the lead times involved in procuring those items, and they must build a purchase strategy that covers the long term. For many, this means a radical rethinking of their current business and procurement models and corresponding restructuring if they intend to survive the twists and turns in the road ahead.
At Tada, along with our partner, GCN, we have been working with many Fortune 1000 companies and mid-sized manufacturers to predict demand and supply fluctuations before they occur and build multi-tier visibility, collaboration, and orchestration to reduce the supply chain risks and grow the bottom line. Now that the market upturn is starting, it is time to act now to make your supply chain resilient rather than wait until another disaster.
To request our Whitepaper on Getting prepared for Chip shortage, visit our, chip shortage solution page