From fancy hairdryers to the latest luxury car, the smallest semiconductor chips are nowadays the most essential component from which all performance aspects often derive. Over the past 8 weeks, a disruption to the worldwide supply of semiconductors has meant that a vast array of supply chains have been impacted.
As predicted at the onset of the COVID-19 pandemic, an immediate drop in both production (particularly in Asia-Pacific) and global demand, would trigger a rapid slow down in supply, to be followed by a subsequent demand wave. It appears that the semiconductor industry responded to shifts in demand by prioritizing the production of more standard or generic chips for common purposes. At the same time, auto manufacturers across all regions have now increased their production volumes much faster than expected by market experts.
Of course, with semi conductors there is a limited amount of inventory and this has meant that more specialist, high performance chips have become rarer. As Forbes reports, a surge in demand for consumer electronics like games consoles can mean a surprise supply challenge for automotive manufacturers. Whilst any increased competition for a commodity means an increase in prices, the greatest price to pay is always any slowing down of automotive production lines – tens of thousands of dollars per minute.
Analysts have also pointed out that next-generation vehicles demand more semiconductors and this may indeed impact the supply of vehicles and sales during 2021. Thus, Japanese automakers, for example, announced in January that they would cut production for several models in the coming months.
Indeed, the semiconductor supply crunch is a textbook example of a supply-demand storm that features many cumulative factors restricting output – including geopolitical sanctions in the region, fires/accidents and of course restrictions on labor from COVID-19.
The challenge for the semiconductor industry is to ensure that production is boosted quickly and processing facilities can be ramped up in order to meet demand – typically, semiconductor orders can take around 3 months to be delivered. Sources report that Taiwanese chip makers will be prioritizing production to the automotive section in the coming months.
The demand wave or recalibration in the past weeks is certainly in action. A surge in new orders from auto makers has now led consumer electronics supply chains, such as those for smart devices, to ripple in response.
Scoutbee helps automotive manufacturers to remain agile
During 2020, many organizations have made increased efforts to diversify and strengthened their supply networks in anticipation of increased competition for components like semiconductors. Scoutbee supports teams at a number of the largest automotive manufacturers to identify optimal suppliers, as well as distributors and reseller options across high end semiconductor categories. We have delivered valuable supply market transparency and a reliable, comprehensive view of production.
The Scoutbee platform combines AI driven accuracy with great speed – ideal for such a competitive supply scenario. The semiconductor issue is a strong example of the sheer impact that supplier insights can have – both in terms of high speed scouting needs, but also for facilitating long term strategic sourcing steps.
Michael Bauer, Senior Key Account Manager Automotive at Scoutbee, comments, “As with any commodity with a six to nine month lead time, any volatility in supply can have profound effects. Whilst the semiconductor sector scales up, we have worked with clients to ensure that they have the most accurate view of their supply options in order to meet their manufacturing requirements. A high degree of market intelligence means they can adapt their purchasing models in the short and medium term with confidence.”