By Rohit Singal
Since COVID-19, we have witnessed an upward trend in the demand for semiconductor chips which has not been adequately met due to disruption in the manufacturing and logistics sectors. The shortage of semiconductor chips has been further exacerbated due to supply chain issues and the ongoing geopolitical conflict. One industry that has been badly hit by the semiconductor shortage globally is the automotive industry, witnessing a USD 60 billion loss in revenue in 2021. The problem is expected to last till 2023.
The shortfall has created such a vacuum that organizations have been compelled to rethink their supply chain strategies to stay ahead of the curve. Few well-thought-through measures that can help circumvent the ongoing crisis are:
Monitor the leading indicators
There are no visible signs that can show how the semiconductor chip shortage situation will pan out. As the ongoing chip shortage is a dynamic situation, it is critical for organizations to understand how it changes on a continuous basis.
Therefore, they should track measures such as capital investments, and inventory index along with the semiconductor revenue growth projections as an early sign of inventory situations of the semiconductor industry. This will help them stay updated on the issue and be informed about the overall industry’s progress.
Manufacturing sector depends on availability
Along with skyrocketing prices, non-availability of semiconductor chips has delayed production schedules. Therefore, organizations should manufacture pieces around the availability of components instead of preference. They should have a modular and flexible architecture in place that will empower them to utilize semiconductor chips along with tackling uncertainty. This will help to meet their near and long-term business objectives.
Migrating to cloud computing
Most on-premises servers often run at a 20 to 30 percent utilization rate. With the shortage of semiconductor chips, not utilizing them to their optimum capacity is unwise. Hence, organizations should consider moving their workloads to the cloud. This will allow them to purchase systems that they require now while adding resources as their needs grow. It is a much more efficient and cost-effective approach than opting for purchasing hardware and resources that they are not planning to use soon. If all organizations incorporate this approach, they may be able to ease the pressure of semiconductor chip shortage.
Let go of “just-in-time”
“Just-in-time” strategy enables organizations to save money and reduce their warehousing and inventory costs while making their operations more efficient and streamlined. But given the ongoing supply chain crisis, relying on just-in-time procurement can spell disaster. Instead, organizations should – at least opt for “just-in-case” purchasing. While it does impact working capital adversely, it is the best way to effectively navigate the ongoing crisis.
Try switching vendors
The timeline between when a semiconductor chip is ordered and delivered has increased from three days to 26.2 weeks as per Susquehanna Financial Group. Therefore, organizations should consider the option of changing their vendors – at least on a temporary basis – to support their customers’ growing needs. If they have a manufacturer that has a relatively shorter lead time, then thinking about changing the vendor can be a worthwhile decision.
Create resilient products from the start
Leading organizations constantly improve their products to make them more resilient, ideally beginning at an early stage in the product development. This enables them to easily weather the storm caused by supply chain disruptions. When the products are made resilient and focused, the shortage of semiconductors does not have any impact on the products or services of the organizations.
Incorporate AI and ML that add intelligence to supply chain management
Legacy systems along with scattered data and manual procedures, make it difficult for organizations to react to supply chain emergencies. However, once organizations digitize their supply chain while incorporating real-time updates from partners and suppliers, they can get data to improve their logistics management.
For example, AI and ML technologies can help organizations with scenario planning, enabling them to identify risks associated with tying up too much capital to their stock and inventory. Integrating these technologies enables organizations to make better decisions about whether they should buy certain components in advance or not. Furthermore, they can assist organizations in forecasting demand-supply gaps and price increases in materials.
While the semiconductor chip shortage is predicted to last till 2023, the time span for each industry may differ. This means that industries in critical need and heavy on influence in the global landscape will have a much shorter time and will be able to get their hands on chips early compared to those deemed less important. Hence, organizations, recognizing where they fall in the category, should be prepared to wait a little longer. Following the above-mentioned steps, organizations can help them seamlessly navigate the challenges of chip shortages that lie ahead of them.
(The author is Vice President at Rahi Systems. He has been in the IT industry for more than 17 years and is a skilled professional in handling audio-visual technology. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited)
