Solutions to the integrated circuit supply chain problem
The new normal since COVID-19 affects more than our daily routine, but it also impacts the supply chain of everyday essentials. This precarious condition is precipitated by more than merely panic buying but impacts the integrated circuit supply chain.
In a recent article in engineering.com, Alan Porter, Vice President, Electronics & Semiconductor Industry at Siemens Digital Industries Software, discusses this major problem and the proposed solutions to address it.
Consumers, in general, do not ponder the complexity and delicate balance of the virtual shopping cart that delivers products to them. The repercussions of a major crisis, like a pandemic, affect the entire equilibrium of consumer buying, causing fundamentals to disappear from the shelves quickly.
In response, consumer electronics and automotive merchants must alter their product output, causing a limited supply of products into the market. So, a big corporation that produces industry-leading personal electronics and mobile phones has money available, and they pay to reserve future fab (front-end fabrication) time for their ICs. Simultaneously, more agile companies can afford to swap out ICs and rewrite software to circumvent their production delays. However, most companies that rely on a free flow of ICs are still suffering.
So, what can we learn from this, and what steps should companies take to prevent these issues from happening again?
The last global pandemic of this magnitude was over a century ago, so this kind of crisis is unchartered territory for corporations. Nevertheless, it would have been a good idea for companies to analyze buying trends in reaction to unforeseen events to better gauge the reaction time to sudden buying changes. They would then have at least some understandings of pandemic buying associated with technology trends and sourcing their supply chain.
The repercussions of the pandemic include a significant upswing in people working remotely, changing the demand for technologies to support this new normal that requires home office equipment. In turn, there was an uptick in the need for chip consumption in those areas, so fabs focused on fulfilling those orders. Consequently, automobile vendors forecasted that the demand for new cars would drop significantly because fewer people driving to work due to lockdowns or travel restrictions. This scenario played correctly with new vehicles sales dropping and some auto plants and dealerships closing. However, retail auto sales rebounded more rapidly than expected, with many people preferring to drive instead of using public transportation or flying.
And because remote working is so versatile, there was a rising demand for recreational vehicles, overwhelming manufacturers with a backlog of orders, further intensifying IC shortages. All these issues continue to drive the increasing demand for the fabs.
In response, OEMs in the U.S. are funding fabs; however, this is a very reactionary response. The time to build out fabs is lengthy and costly. Also, there is a delicate financial balance between predicting the entire fab operation in contrast to expensive shutdowns because of lack of IC demand. So, IC shortages are spurring companies to search for alternative suppliers vigilantly.
Therefore, it is crucial to understand the supply chain process and mitigate risks by switching vendors; however, a company must determine both first and second sources. When a company is desperate to move its product, it becomes tempting to skip these concerns. So, it is crucial to find a trusted vendor because of security issues. Intellectual property (IP) is a part of IC designs, so security is vital in being wary of counterfeit components. In response, it is essential to trace the genealogy of the components, the IP, and the chip.
At Siemens Digital Industries Software, we use smart manufacturing to help companies address IC supply chain problems with the data garnered from the smart manufacturing process to analyze and leverage it throughout the life cycle. When companies automate and factories run remotely, they can maintain production in unforeseen circumstances, such as a pandemic. Siemens is well equipped to alleviate supply chain issues across many industries.
A smart factory uses automation software to collaborate with the supply chain ecosystem, providing real-time insights to react to adverse events as they occur rapidly. Also, an IoT operating system keeps everybody connected to any machine, system, or database in the factory. A low or no-code tool lets the user interface get insights and comprehend them instead of learning the various technologies underpinning them. This tool also offers the capability to create advanced dashboards easily and workflows through an employee’s phone or tablet so they can respond to issues in real-time. Then all the players in the chain have access to what they need to know based on their role in the chain.
Learn more about the advantages of smart manufacturing in the engineer.com article.
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About the author
Alan D. Porter is Vice President, Electronics & Semiconductor Industry at Siemens Digital Industries Software. He joined Siemens in 2020 having completed over 30 years in the semiconductor and electronics engineering environment across multiple industries, including consumer electronics, mil/aero, automotive and network infrastructure. He has worked in large corporations including Apple and Huawei, EDA software companies including Mentor, Synopsys and Cadence, start-ups and professional services roles for high and low volume products.
