Why manufacturers need to rethink supply chain practices

Tanaka Precious Metals’ vice president, William Crockett, argues that manufacturers need to pivot their supply chain management in the face of chip shortages

We’re 18 months into the Covid-19 pandemic and almost no part of the semiconductor supply chain has returned to any semblance of ‘normal’. In fact, the supply chain remains in crisis mode—and it’s hurting manufacturers desperate to deliver goods and products. 

Manufacturers that need semiconductors are dealing with what seems like endless problems. Factories in Malaysia—a critical hub for semiconductor production—aren’t operating at full capacity due to government-mandated factory closures and the Singapore-Malaysia border closure. Price increases for chips in short supply are forcing manufacturers to hike operational and product costs. Dozens of container ships backed-up off Southern California ports are creating supply chain bottlenecks. 

With the chip shortage expected to continue until at least 2022 and semiconductor lead times recently climbing to a staggering 20.2 weeks, manufacturers need to retool their supply chain practices and the way they source precious metals to push production forward. 

Issues are a given for the current semiconductor supply chain, but adjustments can be made to ensure business continuity. The following are two practices which can be implemented to make semiconductors supply chains more agile.

Firstly, consider dual sourcing. Relying on a single source for materials and equipment can be a critical blow to operations during this chip shortage. If a supplier needs to shut a factory due to rising Covid-19 cases or has too many back orders to fill, customers may be forced to halt their operations completely. 

To ensure continued operations, dual source with another supplier. Even if a buyer only sources a small percentage of materials from a second partner, they have another supplier available in case of emergency. Also partner with suppliers that provide proactive communication about their operations—buyers should be receiving a scheduled status update every two weeks and real-time updates for any delays or emergencies. 

Secondly, find partners with onshore and offshore distribution. Most conversation about the chip shortage has focused on manufacturing delays for current products. However, the lack of materials also hinders research and development efforts. With a supplier that operates completely offshore, you run a greater risk of shipping delays. Without even a small amount of materials, you can’t test chip designs for new products, which can set back timelines. 

To continue R&D efforts, consider partnering with suppliers that operate onshore and offshore distribution. Although a supplier may not possess most of its material stock onshore near your locations (eg there’s a smaller supply of precious metals in North America v Asia), you can still use this source for IC tape-outs and prototype assembly. Ensuring new products are tested and ready for production can set a company apart from competitors that are solely focused on current supply chain production.

The light at the end of the chip shortage tunnel is still far away. Supply chains will be indefinitely unpredictable, making agility crucial to continue operations as a manufacturer. To succeed in this difficult period, set up for business continuity through dual sourcing and use onshore distribution to continue R&D projects.