What the Global Semiconductor Shortage Teaches Us About the Future of Supply Chain Management

From a lack of milkshakes in McDonald’s stores across the UK to difficulties sourcing glass bottles for U.S. distilleries, supply chain disruptions have impacted countless businesses this year. But one shortfall, in particular, has created widespread problems: the global semiconductor shortage.

An analysis by Goldman Sachs found that 169 industries have been impacted by the semiconductor shortage in one way or another. Carmakers, medical device manufacturers, soap producers, and even companies that create ready-to-mix concrete are among those hit by the shortage, which doesn’t show signs of easing any time soon. And while few could have predicted the snowball effect of geopolitical conflicts, factory fires, and transportation delays that contributed to the massive scope of this problem, there were steps that companies could have taken to minimize the effect it had on their businesses.

Here are a few key lessons that companies can take away from the semiconductor shortage to build more resilient supply chains moving forward.

Lesson #1: Don’t underestimate demand

In the automotive industry, in particular, one fatal miscalculation cost companies dearly. When the pandemic hit, many assumed that consumer demand for cars would decrease. After all, few were traveling or driving to work anymore. As a result, carmakers called their suppliers to cancel orders of parts and materials, including the semiconductors that have become increasingly integral to the industry as vehicles have grown more reliant on technology.

That assumption proved false. Consumer appetite for cars actually increased in Q4 of 2020 compared to sales numbers from the same period in 2019, leaving carmakers scrambling to get back in gear to meet this unexpected demand. Unfortunately, their semiconductor suppliers had already committed to producing chips for the consumer technology industry, which was booming in the new work-and-learn-from-home landscape, leaving automakers empty-handed.

While an unprecedented situation like the pandemic makes some leaps in deduction necessary, making decisions based on gut instinct alone can be dangerous. Leveraging historical data whenever possible to anticipate surges and track trends can help shippers gain visibility and avoid too many nasty surprises.

Lesson #2: Prioritize flexibility

Two of the key factors making the semiconductor shortage so damaging to businesses are that the more advanced chips can take up to six months to create and, in some cases, have no possible substitute. That means there’s not a lot that companies can do to pivot production until the shortfall clears up—but there are other ways they could have built flexibility into their supply chain to minimize the fallout.

For one, balancing the desire to operate cheap and lean with a more cautious approach to managing supply chain risk could have put companies in a better position to weather temporary shortages. Short-term savings can be alluring, but the long-term costs of leaving your supply chain vulnerable can be devastating.

On the transportation side, with the container shop logjam creating capacity constraints and delays, having backup plans in place could have gone a long way. By forging relationships with a variety of carriers early, for instance, shippers would have been better positioned to find alternative modes and routes when the ports became impassible—before all their competitors picked up the phone and caused rates to skyrocket.

While there are many more lessons that will be learned from this shortage and others like it, one thing is clear: in an age of disruption, flexibility and visibility are non-negotiable elements of effective supply chain management.

Find out how CTSI-Global can help you achieve them by contacting us today.

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