Every day, chip shortages are substantially affecting industries from automobile manufacturers to heavy industrial equipment to medical diagnostics equipment and electronics manufacturers. This presents serious challenges to many enterprises.
Chip Shortages Are a Fact of Life Now
A recent article in The Wall Street Journal took a hard look at the chip shortages. The damage to automobile manufacturers has gotten much of the coverage, but the chip shortage is just as severe elsewhere. Many large industrial and medical equipment manufacturers are feeling the pinch, too. A very expensive piece of machinery can be idled for the want of a few dollars’ worth of electronic components. The chip shortage has widespread effects and a deep economic impact.
What caused the chip shortage?
- Overall Industry Demand
Software controls more and more things. Chips make software run. Many industries including automotive, heavy machinery, and medical equipment are experiencing a rapid transformation to software-driven architectures and adding more and more electronic components. - Increased Electronic Components
Chips control seemingly everything, not just cars. The insatiable hunger for them will mean scarcity for the foreseeable future. - Supply Chain Planning
An important nuance to the situation has been the focus of supply chain managers on optimizing around Tier-1 suppliers. - COVID-19
The component shortage was easing early in 2020, but was then exacerbated by the emergence and spread of the COVID-19 pandemic. - US/China Relations
The changeable and complicated trade relationship with Chinese chip manufacturers has also made this problem more severe.
Solution to the Chip Shortages
At TADA, we have proven solutions to these supply chain issues. Our experience has led us to recommend a phased response. The process consists of three phases designed to deal with customers’ immediate needs and a longer-term plan that will last into the future.
Emergency Corrective Action Plan
Our experience in the supply chain business coupled with our unique technology enables us to offer an Emergency Corrective Action Plan with the following components:
- Part taxonomy to ascertain chip revision levels
- Identification of critical chips and their multi-tier suppliers
- Capacity availability of alternative chip revisions
- Alternative supply sources
- Monitoring of demand flow and coverage
- Creation of a build capacity allocation model
Interim actions for OEMs
- Leverage TADA Supplier exchange network to identify additional sources for critical chips
- Connect OEM and Tier 1 suppliers to the source to bridge supply gap
- Repeat to ensure supply is covered in short term
Long term actions
- Establish a digital control tower with aggregated demand, variability, and flexibility needed across the nodes
- Improve the visibility into the supply chain through a multi-tier assessment
- Develop a commercial framework to serve as a roadmap for implementing strategic buffers and other levers
Conclusion
Chip shortage is real and will continue to hound automobile and industrial equipment manufacturers for some time to come. At TADA, we have helped many customers with these and other supply chain issues with our Multi-Tier Collaboration system.
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