Automotive supply chains disrupted by semiconductor shortage

Automotive supply chains are being disrupted by a semiconductor shortage, causing firms to either suspend or reduce industrial production. The squeeze on supplies is likely to impact other industries, ranging from consumer electronics to medical devices, according to the latest Everstream Analytics Special Report.

“While chipmakers have been called upon to help alleviate the situation by expanding capacity, the supply shortages are expected to carry over well into 2021 given that it can take semiconductor manufacturers around 6-9 months to realign production and meet required additional volumes,” it said.

Over the past decade, the auto industry has emerged as one of the world’s largest purchasers of semiconductors, particularly amid the emergence in popularity for electric vehicles and as automakers seek to boost the appeal of their products with more sophisticated technologies such as touch screens, computerized engine controls and transmissions; built-in cellular and Wi-Fi connections are often inputted into the latest models. Nowadays, new vehicles can consist of hundreds of semiconductors and a shortage of even a single component can trigger production delays, the report explained.

It identified several factors that have contributed to the current global semiconductor shortage: mass order cancellations from automakers amid the COVID-19 crisis; an unexpected surge in post-pandemic consumer demand in the auto market; limited available semiconductor manufacturers capable of producing advanced chips; excessive stockpiling; and unforeseen production disruptions.

Squeeze could impact other industries

Although automakers have borne the brunt of the global semiconductor shortage for now, the squeeze on global chip supplies is likely to impact other industries - ranging from consumer electronics to medical device manufacturers - as semiconductor foundries are stretched to full capacity and unable to take on new orders, the report noted.

In the case of consumer electronics, the shortages have not yet hit the supply of laptops and televisions - which rely on IC chips used to power electronics displays - but several major manufacturers have already confirmed that they would not be able to meet demand for smartphones and gaming consoles due to the current situation.

While not as imminent, similar challenges could face medical device manufacturers down the road as demand for pacemakers and other vital health care devices that require more computing power and semiconductor components pick up.

Recommendations

The report concludes that the current global semiconductor supply shortage challenges “highlight the need to look at re-evaluating inventory strategies and reviewing whether there may need to be adjustments from the ‘just-in-time’ delivery practices for semiconductor components that many automakers have adopted.

“Although lean supplies can help improve efficiencies under normal circumstances, the current situation has shown the value of making sure that inventory levels are appropriate can be a critical factor in ensuring that supply chains are managed successfully.

It also recommends the adoption of more dynamic and accurate demand forecasting with the examination of short-term historical data and forecasts on a regular basis; the use of real-time supply chain risk monitoring tools to continuously keep abreast of potential unforeseen disruptions; and keeping track of regulatory trends in order to make sure supply chains remain secure and resilient.

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