Companies are too reliant on too few manufacturers ©  sefa ozel/Getty Images
Companies are too reliant on too few manufacturers © sefa ozel/Getty Images

The top four semiconductor sourcing mistakes

22 October 2021

Semiconductor shortages have hit industries from automotive to tech and they are forecast to last until 2023.

Lead times have drastically increased, rising for the ninth consecutive month in September to reach an average wait time of 21.7 weeks, according to Susquehanna Financial Group.

Atul Vashistha, founder of supply chain consultancy Supply Wisdom, said he expected shortages to last until 2023, but this was reliant on “no more major disruptions” hitting supply chains.

Vashistha said in order to be able to overcome disruptions “companies must increase the transparency and monitoring of their supply chains”.

Here are Vashistha's four top chip sourcing mistakes:

1. Not monitoring supply chains

“When you look at what companies are doing today, they'll keep an eye on the direct supplier. But they're not actually following the supply chain all the way through the initial stages,” Vashistha said. 

He explained many companies don’t know where their chips are coming from, but by monitoring they can mitigate the impact of disruptions by better understanding the challenges directly facing their supply chain. 

“If you don’t understand that, you would have no idea why a disruption might occur. But if you did, you would understand it. And the earlier you know it, the better you're able to respond.” 

2. Too reliant on too few manufacturers

“We are over-reliant on a few countries, a few locations and a few suppliers for semiconductors,” Vashistha said. 

He pointed to how chip manufacturing over the past two decades has increasingly become concentrated in east Asia, leaving Western countries without semiconductor plants. 

Vashistha argued that while investing in domestic semiconductor production would bring initial costs, the savings it could bring companies in terms of supply security would outweigh the upfront costs.  

“There's a huge benefit in assured supply. In the long run, you might actually offset that increase in costs, because you don't have business disruption like you're having now.”

He continued: “Consumers are going to prefer companies that are more dependable than others, so your brand reputation benefits from being a more assured partner or a more assured supplier.”

Companies must act now to diversify their semiconductor supply chains or risk facing “even bigger challenges in the future”.

3. Lack of risk management

Vashistha said a fundamental factor driving the shortages has been a lack of risk management. 

He said: “This is a perfect example where we have to have a certain degree of planning capacity. Companies have assumed these disruptions are black swans. The interesting part is, these are no longer black swans.

“People talk about Covid as a once in a lifetime experience. No, we've had four pandemics in the last 20 years. Covid has just happened to have the biggest impact of the four pandemics. Companies need to have a risk management strategy that reflects the fact that these are not black swan events.” 

4. Data streams 

There are streams of data that companies should be utilising to take greater control of supply chains, Vashistha said. 

“The only way in today's fast changing environment to understand what risk you're undertaking, is if you have some kind of a continuous risk intelligence mechanism, where you're getting streams of risk intelligence on a continual basis, and as near to real time as possible. And get that not just for your third party, but for that entire supply chain.”

He said these kinds of data and tech driven monitoring systems are the future of supply chains in increasingly uncertain environments. He said: “Fast forward another 12-24 months, and I think you're going to start seeing that as becoming a standard practice where companies will monitor the entire supply chain.”

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