Over the last few years it has been all too easy to design new products and get them into the market quickly but all that changed in 2020.
The onset of COVID-19 sent shockwaves around the world with country after country imposing lockdowns. At that time many industries reacted quickly and started to cancel the production of products they thought consumers wouldn’t be buying, like cars for example, while other industries increased the production of things like smartphones, laptops and communications devices which would facilitate the ‘work from home’ culture.
This was fine for a while but an issue which it quickly highlighted was that the semiconductor industry is not good at altering direction or changing capacity quickly.
Some of the lockdowns resulted in a significant loss of capacity in either semiconductor manufacture; the wafer fabrication plants, or the follow-on processes such as testing and packaging. The closure of these resources meant that the world was absorbing stock already available in the market at a high rate which in turn meant there was a massive drop in available inventory. Once these stocks were consumed a global shortage was more or less inevitable.
This was then further exaggerated by the quicker than expected bounce back in some sectors, notably automotive. When this happened these massive global companies started to demand ever increasing numbers of chips just as the manufacturing plants were starting to come back on line. The result was that demand for chips increased by somewhere between 30% and 50% which massively outstripped supply even at pre-pandemic levels.
So, how can we deal with this?
Many governments around the globe have realised that being dependant on a few regions of the world for semiconductors is not good and so they are looking to invest massively in new semiconductor clusters locally, this includes Europe, the USA and others. This ‘localisation’ will ultimately lead to more capacity and more resilience to global variations but establishing these clusters of excellence takes time so this is very much a longer term activity.
In the short term we are relying on the existing manufacturers to increase capacity in all parts of the supply chain to avoid the bottlenecks that we have seen over the past two years. This is being done and it will make a difference. Most analysts suggest that we should see an improvement in the situation towards the 2nd half of 2022 but few think we will get back to anything like normal before the middle of 2023.
Before that we need to be more proactive to try and mitigate some of the impacts. Some steps we can take include:
- Design in some flexibility
- Spend more time on forecasts
- Schedule production
Design in flexibility: When designing a new product we need to consider that some parts may be hard to source or on long lead-times. If these are critical components in a solution, such as the Microcontroller, then we can try and build in options. By choosing a MCU which is part of a large family we may be able to use alternatives with different memory sizes or have multiple footprints on a PCB that allow the same MCU in different packages to be used.
Spend more time on forecasting: Forecasting future sales is always very difficult, few markets have long term visibility of demand. But in these times we need to plan as far ahead as possible. If orders can be placed on manufacturers for production many months ahead then components can be sourced ‘on allocation’ which means that the supply should be more or less guaranteed. Now, more than at any time, accurate planning is essential.
Schedule production: If we get our forecasting right and predict demand many months ahead then manufacturing can be scheduled with more accuracy and more certainty which in turn means you can go out and sell your product knowing that orders can be fulfilled.
Here at Touché Technology we work closely with all of our customers to help overcome these and many other challenges, it is a difficult time for many industries but together we will get through it.