In this month's sensible semiconductor news update, we’ll explore the angst in the market around record inflation, continued disruptions, and the increased importance of semiconductors in the direction of the global economy.
Facing unprecedented inflationary pressure, manufacturers and OEMs across all industries are prioritizing agility to secure access to the chips they need. Meanwhile, governments worldwide are wising up to the role semiconductors play as critical economic infrastructure.
Supply Chain Switch From Lean to Agile Is Speeding Up
Seasoned veterans of electronics supply chains, such as smartphone manufacturers, have long understood the value of agility. Chip shortages of the past few years combined with the rise of the Internet of Things have brought the value of this approach into sharp relief. Today’s demand for interconnectivity has resulted in a proliferation of chips in all industries. Today’s consumer-appliance OEMs are navigating the ongoing supply chain imbalance and discovering their traditional, cost-efficient “just in time” business models no longer apply.
Modern OEM supply chain leaders, across all industries, are now exploring opportunities to emulate the businesses that worked with semiconductors and chipmakers for decades. What they’re finding is that the move from a “lean” philosophy to a more modern and effective “agile” one will demand three major transitions:
- Flexible product designs
A more flexible product design allows production to continue unimpeded in the face of a particular part shortage. The company can simply swap in similar components when another one is unavailable. The design process can also support flexibility by incorporating more common and readily available chips to begin with, rather than requiring custom ones.
- A diversified supplier base
Narrow, consolidated supplier bases are efficient, but vulnerable to seismic setbacks when even small disruptions occur. Many companies have found it necessary to expand their supplier bases with multiple vendors for each critical part so that backups are always available. One easy way to securely expand your supplier base is by exploring relationships with hybrid distributors — who have a deep understanding of market dynamics, a pre-vetted list of authorized and trusted independent supplier options, and can help you navigate the complexities of the electronics supply chain.
- More data for inventory management
Data about lead times, supply levels, pricing, and more is fuel for efficient inventory management. OEMs and other manufacturers are becoming more resilient when they have access to rich insights and data that can inform their stock-level maintenance, forecasting, shipping, and warehousing decisions.
Inflation Is Now the Driving Force in Procurement & Sourcing
New research proves that 100% of procurement and sourcing leaders have been forced to take action to thwart inflationary pressures. There’s no question that inflation is the number one issue on the minds of procurement and sourcing professionals in the latter half of 2022. With the current U.S. inflation rate at 8.5% (versus only 1.4% in 2020), pre-existing pressure from global events and a volatile market environment has only become further magnified.
Among the findings of the TealBook 2022 Supplier information Study were the following insights:
- 44% of procurement and sourcing leaders have needed to increase the price of goods and services
- 48% of those same leaders have taken action to find new suppliers in order to lower costs
- 100% of respondents have faced negative consequences from taking too long to identify a supplier, including delays in project timelines (56%) and exceeding project budgets (50%).
- 94% of procurement and sourcing execs are making visibility into Tier 2 suppliers a high or moderate priority in order to find new and potentially lower-cost suppliers.
- 77% of sourcing and procurement leaders are “extremely concerned” about their ability to handle supply chain disruptions.
- 64% of procurement professionals see accurate, up-to-date supplier data as a way to quickly and cost-effectively source materials in a crisis.
- 99% of professionals want to increase supplier diversity to deal with future problems—as well as seize innovation opportunities.
The bottom line is that no company, no matter how agile, has been immune to the effects of sky-high inflation combined with other supply chain disruptions.
Should U.S.-Made Chips Be Seen As Critical Infrastructure?
Brookfield, among the world’s largest infrastructure investors, is accustomed to inking enormous deals in the energy, transport, and telecom sectors. In August, it hammered out a $30 billion partnership with Intel on the construction of two new fabs. Is it time for chipmakers to be considered members of the critical infrastructure?
The two state-of-the-art fabs will be located in Chandler, Arizona. While $30 billion is certainly an infrastructure-scope dollar amount, it’s not an unusual expense for an advanced logic and memory fab, which can run up to $20 billion each when you total up the facility and equipment. According to a Boston Consulting Group report, this is more than it costs to build a state-of-the-art aircraft carrier or a nuclear power plant.
Brookfield’s move into the semiconductor space showcases the real impact of the years-long chip shortage on the global economy. The world’s perspective on chips has changed. Everyone from the U.S. President to political leaders in Europe and Asia now views chip factories as indispensable to both national security and the economy — a philosophy demonstrated by the recent passage of the CHIPS Act.
The Brookfield partnership, Intel says, is a “force multiplier” for these kinds of government incentives. Those incentives paired with support from major infrastructure investors will propel the semiconductor industry to a record $185 billion in investments to expand production in 2022 (a 21% increase from last year). Perhaps the industry truly has escalated to the realm of core infrastructure.
Stay Up-to-Date on Semiconductor News With Sensible Micro
The Sensible team always keeps an ear to the ground for valuable industry insights and electronic component news. Our robust global network often enables us to access critical insights early, even before many OEMs and manufacturers.
Stay informed with Sensible Micro and get comprehensive insights into the strength of the chip economy and the latest trends in semiconductor business strategy. Also, tune in to Part 2 of our September news update for a look into the latest technological innovations!