2020 will likely be marked with lead-time and shortage challenges. Here are 5 ways to build a thriving post-pandemic supply chain.
It seems that the world is finally starting to edge past the worst of the Covid-19 crisis, spurring a potential rebound of the electronics industry. Combined with predicted wafer shortages, electronics manufacturers should factor in lengthening lead times and products allocations into their forecasts.
Let’s take a look at what’s ahead for electronics in 2021 and how manufacturers can prepare and mitigate potential shortages by building the right kind of post-pandemic supply chain.
Post-pandemic supply chain reality: Wafers less available, more expensive
Analysts and wafer manufacturers agree that the coming year will see both rising prices and rising lead times in the semiconductor market. A variety of factors play into the emerging issues, including Covid-19, economic disruptions, and technical challenges.
Another factor: insufficient investment in 200mm wafer technology as manufacturers leapfrogged to get to more sophisticated 300mm technologies favored by those serving the PC market, according to an article in ExtremeTech.
Now, chips based on 200mm technology are in high demand as a result of increased sales of chips for 5G mobile phones, as well as increased sales of technology products that support remote work, education, and medical care, said Leuh Fang, chairman of Vanguard International Semiconductor Corporation (VIS). A rebounding automotive market will also push up demand in the coming months, he added.
On the high end, prices are going up.
“The 300mm polished wafer price for the first half of 2021 is close to finalizing now,” said Sungho Yoon, senior research manager at SEMI in Semiconductor Engineering. “If the memory market rebounds starting in 2Q21, we might see a price increase in 2H21. As for 300mm epi wafers, demand is expected to remain solid next year. As a result, the epi wafer price is expected to trend up in 2021.”
Meanwhile, these capacity challenges will likely raise 200mm wafer prices. United Microelectronics (UMC), Global Foundries, and Vanguard International Semiconductor (VIS) raised their 8-inch foundry quotes by 10 to 15% in the fourth quarter of 2020, with the quotes set to rise by another 20 to 40% in 2021, Huayuan reported.
Getting ahead of the curve
As the industry works to mitigate these shifts in availability and price, electronics manufacturers must turn to best practices for building a robust post-pandemic supply chain. And manufacturers can count on disruption to come in some form or another. Continuing to focus on resilience and flexibility will fortify and secure the supply chain against probable business fluctuations.
Here are five areas to concentrate on:
- Automate supply chain activities: Digitalization can speed up processes and improve efficiency. For example, cobot technology, which partially automates a human process, can enhance warehouse productivity, while artificial intelligence (AI) can help procurement specialists make better decisions. Advanced technology can also enhance visibility across the supply chain, delivering “capabilities to sense or predict supply and demand, processes for collaboration with suppliers and customers and ways to assess and measure supplier-risk in near real time,” an article by EY explained.
- Reduce supplier risk: By getting to know your suppliers at a deeper level, procurement pros can get a better handle on potential hazards and mitigate shortages. Organizations should measure partners on a broad array of metrics culled from internal data, supplier and market data, and external data on supplier performance (i.e. how a supplier performs with other organizations).
- Diversify, diversify, diversify: By identifying and partnering with an array of supply sources, both for parts and materials, organizations can become more resilient. Some organizations may choose suppliers in new geographic areas or add additional sources for certain critical components. “Disruptions to supply chain operations have intensified in the past few years. This means that the cost of retaining multiple supply locations must be seen more as a cost of doing business, rather than an inefficiency,” said Geraint John, VP Analyst at Gartner.
- Build a buffer: Additional inventory and capacity buffers are useful to address shortages, especially for organizations with new offerings or market expansions that may cause unexpected surges in demand.
- Build strong distributor relationships: Distribution partners such as A2 Global can work with customers to meet lead time demands and ensure smooth production.
To summarize: Change is the only constant — so a strong shortage mitigation strategy should also be the norm. Organizations can build strong post-pandemic supply chains by leveraging technology, nurturing strong supplier relationships, and carefully planning ahead.