For OEMs, building a robust and resilient supply chain has never been more critical.
The semiconductor industry is at a crossroads, facing unprecedented challenges that demand innovative solutions. Here are three key strategies to help mitigate supply constraint risks:
1. Establish a Solid Network of Suppliers
Supply chains are increasingly interconnected. OEMs can mitigate risks by building a network of resilient suppliers, both globally and in proximity to their operations. This approach provides flexibility and options when shortages arise, reducing the risk of disruption caused by unexpected events in key production hubs.
Specific strategies for strengthening supply chains are recommended for different industries, from automotive to defense and aerospace. But all OEMs need to be strategic in how they select and communicate with their suppliers — especially when sourcing hard-to-find parts.
“Not all OEMs have the resources in place nor the technical expertise to effectively collaborate with semiconductor makers. It is a steep learning curve and onboarding the industry experts that really understand semiconductors and their capabilities and limitations is challenging,” said Dave Schellenberger, marketing manager of Microchip’s automotive unit. “To be most effective, OEMs need to have people that can communicate their needs and requirements in a clear, comprehensive way that will help them make the right strategic decisions.”
2. Anticipate and Act
Recognizing and addressing supply chain disruptions proactively is a central component of building a resilient strategy. Instead of waiting for issues to escalate, OEMs should monitor the industry landscape closely and adapt quickly to changes. Proactivity enables companies to stay ahead of potential disruptions and implement timely solutions.
For example, while the 2022 US CHIPS Act was staged to boost domestic resilience to supply chain disruptions and did indeed impact semiconductor mergers and acquisitions in 2023, things aren’t going quite as planned. Chip makers like TSMC, Intel, and Microchip Technology, which were planning on expanding their production capabilities domestically, have run into issues with funding and resources. “Nothing has failed yet,” said Emily Kilcrease, director of the energy, economics, and security program at a Washington think tank, as reported by the New York Times. “But we’re going to have to see some progress and those factories actually coming online in the next few years for the program to be considered a success.”
This success — or failure — of the CHIPS Act will strongly impact the global supply chain, particularly when considering China’s anticipated impact. “Western nations need a plan for when China floods the chip market,” said Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, in Financial Times. It will be critical for OEMs to stay on top of these and other local and global industry developments to effectively prepare for the future.
3. Maximize Insights by Employing Advanced Analytics
In the fast-paced semiconductor industry, staying informed is paramount. OEMs can leverage advanced analytics by utilizing reliable, up-to-date sources for market forecast information. While comprehensive market reports such as The Global Market for Advanced Semiconductor Packaging 2024-2035 will provide a truly in-depth view, not everyone has time to read 330 pages of detailed analysis cover-to-cover — plus, that only provides information from a single, though reliable source.
Instead, it’s best to commit to a handful of trustworthy sources of information that provide highlights of reports conducted by multiple third parties, for a broader, more balanced view of the state of the industry. Gartner, for example, predicts the semiconductor industry to grow by nearly 17% and worldwide demand for memory chips to climb by 66.3% in 2024. The International Data Corporation is even more optimistic, with an annual growth rate projection of 20% for the industry. On the other hand, the World Semiconductor Trade Statistics only anticipates a 13% growth and 40% increase in demand for memory chips. Utilizing resources that compare advanced analytics from multiple, reliable sources helps to paint a more accurate picture of what the future may hold.
What comes next?
“In my opinion, the semiconductor industry is undergoing a tectonic shift, and the ripples of this transformation will be felt far and wide.” — Jorge Gonzalez Henrichsen, Forbes Councils Member and Co-CEO of The Nearshore Company
The semiconductor industry will likely emerge stronger and more resilient after the last few years of tumult. But we’re not quite out of the water, yet. Organizations that focus on risk mitigation strategies will be better positioned to weather constraints – both now and in the future.
Read more:
● What’s Driving the Continued Automotive Chip Shortage?
● 4 Tips for Sourcing Hard-to-Find Parts in the Current Global Shortage Market
● 3 Reasons Why an Independent Distributor is Your Best Electronic Supply Chain Partner