There is no doubt that the larger supply chain has been hit by many challenges over the past few years, including pandemic shutdowns, fluctuating consumer demand, geopolitical events and more. It has put enormous pressure on many industries, particularly technology and electronics.
Not only did the global semiconductor supply chain slow ahead of the pandemic, but volatile markets further exacerbated these problems. The most important factor contributing to the delay is the limited supply of semiconductors, materials and related components.
The top five chip producers are China, Japan, South Korea, Taiwan and the United States. But it should also be noted that these countries are also big importers. Many of these countries were hit hardest by the pandemic and subsequent factory closures. As a result, in addition to reduced limited supply, mining and procurement operations were closed, manufacturing slowed and production was virtually non-existent.
This does not necessarily explain why the semiconductor supply chain has been slow to recover in hindsight. With most of those shutdowns now over, shouldn't things go back to their current pace? Moreover, consumer spending and demand have fallen as economic uncertainty has set in. Why is there still a lack of supply?
There are natural delays in the global supply chain
From mining to manufacturing, operations generally don't restart overnight, even when people return to work. It takes time to get back up to speed for a number of reasons. For starters, in manufacturing, supply is necessary to develop and create, so as other markets close or slow down, those resources are harder to come by. Fuel, machinery and parts for maintenance are also harder to come by, which affects productivity and output.
But there are inherent delays in the global semiconductor supply chain. The materials used are rare, already difficult to procure and obtain, and often expensive. Shutting down operations at the beginning of the chain affects every stage thereafter, and manufacturers seem unable to find other sources - these resources are very limited and rare. From start to finish, it takes an average of 18 weeks to make a semiconductor.
Component requirements have not decreased
Semiconductors, general electronic products and related components are used in a wide range of industries. There are obvious markets - such as consumer electronics, autos and health care - but there are also commercial sectors. Farm equipment and agriculture, modern computing, general lighting and even capital equipment are all areas where semiconductors are used and needed.
Even though overall demand has fallen and people are buying less, these industries still need parts and materials to continue making, operating and moving forward. Overall, the need for a healthy and efficient global semiconductor supply chain remains constant.
Active, not passive
The problem that modern supply chains are trying to solve with data intelligence and smart technology is to create more pre-emptive guidelines for the market. In other words, one never knows what will happen until it happens. By then, it was too late. That is exactly what has happened with the global semiconductor supply chain shortage.
Because it wasn't prepared, the problem grew and continued to spread down the chain. This is no different from what happened to toilet paper during the pandemic. Few could have foreseen this, and the panic buying has made it worse.
Innovative technologies such as artificial intelligence and machine learning will help predict upcoming events, resulting in a more proactive and preventative system rather than reactive. As one has seen in the semiconductor supply chain, this requires planning ahead.
New operations abound
In response to the shortage, the United States has begun to build local parts plants with the support of manufacturers and suppliers. This takes some pressure off the import channels, but also ensures that operations will continue in the event of more events, such as pandemics and economic shutdowns. With more sources, there are more opportunities to supply a larger market. Still, it's hard to say whether these newer local operations will ease supply chain shortages.
In addition, China's Taiwan is one of the world's largest contributors to semiconductor materials and manufacturing, and geopolitical concerns about the region mean the industry could have a greater impact on the global supply chain. Many businesses diversify their supply risk by sourcing from other regions.
Will the recovery accelerate?
There is undeniably too much going on socially, economically and politically to express in one way or another. However, it is hoped that collective action now will help support the global semiconductor supply chain in the near future. Modern technology is helping to speed up and optimize operations. New factories and manufacturing plants are helping to boost output. Mines and material-purchasing operations are back in operation, and the wheels may be turning even faster than before the pandemic.
Time will tell, but the outlook is positive and the recovery appears to be accelerating. The gap between supply and demand is narrowing.
