Global Chip Shortage and Supply Chain Management (BE260)

This essay analyzes the global chip shortage, examining its origins in the COVID-19 pandemic, trade tensions, and increased demand for electronics. It explores the disruption to supply chains, particularly in the automotive and electronics industries, and the resulting impact on production and c...Read More

STUDENT ID . 1906005
BE260:
SUPPLY CHAIN MANGEMENT
A GLOBAL CRISIS OF CHIP SHORTAGE
1. Introduction

It is well known that mobile phones and computers cannot be manufactured without the use
of chips which we use in our Morden lives and from this, there was a boost in demand of
those electronics, However, "chips shortages" tendencies began in the automobile industry in
the second half of 2020 during the height of the pandemic and progressively spread to other
industries. Generally, electrical gadgets, ranging from phones to your computer to your
automobile, require hundreds of chips.
As a result of both COVID-19 and trade frictions, the industrial chain's long-standing supply
and demand balance between upstream chip suppliers and downstream electronic makers has
been disrupted. The global chip problem results from several distinct circumstances, the
biggest one being the snowball effect of the COVID-19 epidemic. Other possible causes
include the China–United States trade war and Taiwan's 2021 drought. According to an
article published by Inews (Alex-finnis, 2021), owing to covid Globally, restrictions have
compelled a huge number of people to work from home. This increased computer sales – up
11% year over year – boosting demand for chips. As demand increased, supply decreased.
Due to social distancing regulations, factories were required to operate at decreased capacity.
"What we did with those laptops also contributed to the delay," Dr Suresh Venkatesan, CEO
of POET Technologies, which produces photonics and optoelectronics for the data centre and
telecommunications businesses, told Forbes. More individuals now own routers and
broadband, which means they consume more bandwidth for Zoom calls, FaceTime
conversations, and streaming other forms of entertainment. This resulted in a disruption in
supply and an increase in demand, both of which result in depleted inventories across the
sector." The semiconductor scarcity has impacted industries other than automotive, with other
industrial firms unable to get chips. This demonstrates the vulnerability of such supply
chains, which rely heavily on Asia as a semiconductor manufacturing hub. Numerous
manufacturers are already in crisis mode, and few see a quick resolution. Automakers and
chipmakers alike will need to collaborate to address the demand mismatch. This essay
assignment will discuss how the scarcity occurred and what transpired.
2.1 Review of the reasons for the chips shortage in the electronic industry
and their competitive strategy in the global market
As the world shut down in view of the COVID-19 pandemic, numerous industrial facilities
shut with it, making the provisions required for chip producing inaccessible for a really long

time. Expanded interest in customer hardware caused shifts that undulated up the production
network. Orders started to stack up as producers attempted to make sufficient chips to meet
the new degrees of interest. An accumulation started to grow and grow. The current demand
for chips is incredible that manufacturers can't make sufficient chips to meet it as of now,
which means buyers will before long be seeing more exorbitant costs for fewer products, As
Dr Abhisek Dixit, Professor in the Department of Electrical Engineering, Indian Institute of
Technology – Delhi, clarified, (Bhatia, 2021) "The consumption of integrated circuits in
products is ever increasing and a large manufacturing sector for these kinds of integrated
circuits are a part of the supply chain."
While lean stock practices save organisations the expenses of storing and keeping up
with inventories of fundamental items and materials, they leave organisations in danger. The
worldwide deficiency of semiconductors is only one illustration of the risks of lean
production network the board. The events of 2020 have clarified that a nimble production
network with worked in versatility is fundamental for assembling and exchange. The
opportunity has arrived for a store network change. Accordingly, an enormous number of
fabs and bundling and testing plants had to diminish their creation scale. Obviously,
exploring future disturbances requires a more comprehensive and proactive strategyin other
words a push strategy , one that requires nearer cooperation among providers and their
clients than previously (Hanbury and Hoecker, 2021). For example,
• Creating a segmented marketing plan.
• Instilling smart resilience in employees
• Collaborating with partners at all levels of the supply chain
2.2 how suppliers find the way around the global chip shortage
the semiconductor lack results from a blast of interest despite reliable inventory. Regardless
of the pandemic, interest for capital gear depending on semiconductors has broken out of an
almost twenty-year sleep. In short — expanded interest drove expanded capacity's tech
monsters like Samsung Electronics Co. Intel Corp. is delivering regulator contributes in-
house. Nevertheless, most chipmakers re-appropriate the production to foundries such as
Phison Electronics Corp and Silicon Motion Technology Corp. In a global shortage, the
organisation that bought the CPUs needs is the opposition that can close down competitive

lines. One of the hardest-hit enterprises has been the auto area, which is set to lose $110bn in
incomes this year, as per another investigation from AlixPartners. This is twice just about as
much as past appraisals of $60bn. In any case, it is not simply incomes and supplies that
automakers need to stress over. Stellaris, the vehicle organisation, shaped by the
consolidation of Fiat and Peugeot, said it is eliminating more than 1,600 positions at its
Illinois Jeep plant in a transition to "offset deals with creation" of the Jeep Cherokee, which is
made there. (Global chip shortage: everything you need to know, 2021) . Electronics
companies and automobile manufacturers are scrambling to get system chips utilised in visual
processing, data transfer, signal conversion, and calculation due to an intensifying supply
shortage. Increasing the efficiency of the chip supply chain Knowing the ins and outs of your
semiconductor chip supply chain means that the chip industry will be less sensitive to global
changes that might reduce the availability of computer chips or raise the price of computer
chips.
2.3 how chip manufacturers achieve strategic fit. In responsive is the chip
supply chain.
On one more hand, the effect of the chip shortage before long spread to different
areas, in any event, hitting blue-chip tech organisations like Apple, Nintendo, and Cisco. The
emergency upset even the best-arranged organisations that had been putting resources into
store network flexibility for quite a long time. For what reason did the lack spread? Most
interests in semiconductor R&D and capital uses for new fabs go into the "forefront"
innovation expected to create high-level chips in cell phones, P.C.s, and servers. Nonetheless,
in agreement with wall street, journal chip creators have had restricted motivation to put
resources into extra creation limits concerning these less-progressed chips, which regularly
sell for a dollar or two each, contrasted and $100 or more for better quality semiconductors.
Not at all like their cutting edge cousins, the fabs that produce slacking edge chips will
generally be more seasoned and completely devalued, and slacking edge fabs had no
abundance ability to give (Sohn, 2021). For some area players, this imbalance has been taken
care of to work on monetary execution. Taiwan Semiconductor Manufacturing Co as of late,
increased its income development viewpoint for 2021 by a fifth in dollar terms, while ASML
Holdings (NASDAQ: ASML), one of the most significant expert gear providers to
semiconductor organisations, has recently uncovered first-quarter deals of €4.4bn (£3.82bn)

and a gross edge of 53.9 per cent, both well ahead of direction (robin, 2021). For example,
firms like Intel and Samsung have somehow found their way during this shortage; for
instance, CNBC revealed that recently delivered Alder Lake CPUs are loaded with cutthroat
highlights. Its chip innovation is behind Taiwan Semiconductor Manufacturing Company
(TSMC) and Samsung. Fifty years later, Intel appeared the 4004, the world's first CPU, and it
has been upset by a few production delays. With an eager guide to getting and outperforming
Samsung and TSMC by 2025. Key to the arrangement is a progression of gigantic new chip
production plants or fabs that Intel is working on in the U.S., Europe and Israel. They will
cost more than $44 billion to construct (Schoolov, 2021). The spending bearing probably
implies a constantly close inventory of ordinary chips utilised in vehicles, home apparatuses
and contraptions, as indicated by industry experts. It also means that the wait for orders may
continue to be lengthy.
3.1 the advantages and disadvantages of sourcing chips from China than
their own local, regional markets?
As COVID spread across Asia, ports were closed for months at a time. Numerous
components of the transportation supply chain cannot manage this accumulation or the
resulting labour shortages, driving the supply chain into additional crises (Feder, 2021).
Recently, most company owners expressed their views on sourcing from China. A primary
reason for this, according to sourcing experts, is the heightened scenario caused by the US-
China trade war. One of the benefits for sourcing chips from China is that the country has
strengthened its top-level design, increased the rate of chip localisation, and enhanced the
chips' self-controllability, in response to the new product line of the Internet of things (IoT),
5G and 6G networks, and an increase in demand for computing power. Global chip sales will
reach $440 billion in 2020 and are expected to expand at a rate of more than 5% each
year(Campbell, 2021). Among these brands are Baidu, Alibaba, Huawei, Xiaomi, Oppo
smartphones, and Gree, Midea, TCL, and Haier home appliances.
Until recently, the top five global automotive chip producers controlled around 50% of the
worldwide automotive chip market. China seized the pandemic of domestic substitution as an
opportunity to strengthen top-level design, increase support for the automotive-grade chip
industry, achieve breakthroughs in domestic chip technology, and improve the coordination
synergy level and capacity utilisation of domestic upstream and downstream enterprises in

order to compensate for the foreign chips shortage. While in East Asia, Japan has long been a
leader in semiconductor research and development and materials, with semiconductor titans
such as Toshiba, Sony, and Renesas. South Korea and Taiwan are strong in memory and
foundry technologies, among other things, due to the requisite accumulation of technological
know-how.
3.2 obstacles in the coordination in chip supply chain.
An analysis done by Sohn TSMC and Sony Group Corp. said they would assemble a $7
billion chip plant in Japan to make semiconductors dependent on more seasoned innovation,
with an end goal to fill a portion of the hole. The plant is not set to begin large scale
manufacturing until late 2024, so it will not tackle the issues hitting the creation of vehicles
and hardware. While a necessary expense, it also does not make a difference much as,
generally speaking, a worldwide venture. The crisscross mirrors the lopsidedness on the
planet's chip-supply issue: Not all chips are made equivalent in the $464 billion
semiconductor industry. The hole in monetary prizes between the
two universes of chip creation, more current and more established, is unmistakable. A 5-
nanometer wafer for cutting edge chips—which permit applications to run on the most recent
cell phones like the iPhone 13—sells for about $17,000 as of this current year, as indicated by
Bain and Co., an administration counselling firm. That value contrasts and is generally
$3,000 for a 28-nanometer wafer for "inheritance" semiconductors that fill more specific
roles, such as interfacing gadgets to Wi-Fi organisations. Obtained from (Sohn 2021), the
other obstacle like the lack of manpower to be able to produce these chips, which is majorly
affecting the supply chain.
4.1 recommendations for recovering from the global chip supply chain
disruption.
Additionally, it should design a development strategy for automotive chip technology, define
the rate of localisation of automotive chip technology, implement critical support policies,
enhance intellectual property protection, lead domestic companies to conduct research and
make breakthroughs and promote applications continuously breakthrough technological
barriers, extend and polish the domestic integrated circuits industrial chain, and gradually
increase self-sufficiency (Wu et al., 2021),. However, this new chip shortage is not an
isolated incident but rather a sign of a systemic issue that will not be resolved without a

complete rethinking of the semiconductor manufacturing supply chain. The semiconductor
manufacturing supply chain is stiff, with a high entrance barrier, and the supply glut's dire
consequences are worsened by fast-cycling end markets (Contributor, 2021). Consequently,
we are already seeing the repercussions of choices taken by chipmakers and their equipment
suppliers over a decade ago.
• Strengthen supply networks that have been a source of worldwide shortages.
• Improve equipment liquidity, enabling U.S. chipmakers to grow capacity while limiting the
danger of a supply glut.
• Enable smaller producers to compete in older markets, owing to lower capital equipment
costs.
conclusion
Impacted by COVID-19, the chip manufacturing industry experienced an uninvolved
decrease in production. Albeit the circumstance can be improved inside a brief period, the
"chips deficiency" may keep on affecting the worldwide electronic industry inventory
network for the serious level globalisation of the chips business chain and the "high
affectability" of international relations, the consistent pandemic, and the vulnerability of
exchange gratings. Mark Dohnalek, president and CEO of Pivot International, said, "The
better approach for thinking during this chip deficiency has become: assuming you don't have
it in stock, you don't have it. This chip deficiency has helped us that the best way to succeed
is to purchase far out before request to get what is required from the production network. To
this end, this paper accentuates that. What're more, endeavours ought to help out different
gatherings and avoid potential risk from numerous viewpoints to adapt to the "chips
shortages" emergency of the electronic business in the long run.
References
alex-finnis. (2021, November 17). Why there is a global computer chip shortage and when it
could end. Inews.co.uk. https://inews.co.uk/news/technology/chip-shortage-why-
global-microchip-crisis-explained-how-long-what-meaning-1305937

America, E. (2021, March 4). Supplying Demand: The Chip Shortage in Macro Context.
Medium. https://employamerica.medium.com/supplying-demand-the-chip-shortage-
in-macro-context-dbf08f622e9a
Bhatia, A. (2021, November 22). Explained: How the tech world is tackling the chip
shortage. The Indian Express. https://indianexpress.com/article/explained/how-the-
tech-world-is-tacking-the-chip-shortage-7633696/
Campbell, C. (2021, October 1). From Phones to Cars and Fridges, This Taiwan Firm
Powers the World. But Success Brings Problems. Time.
https://time.com/6102879/semiconductor-chip-shortage-tsmc/
Contributor, H. P. E. (2021, April 23). Hewlett Packard Enterprise BrandVoice: Thrive In
The Age Of Insight: 4 Steps To Scalable Data Analytics That Don’t Require An It
Makeover. Forbes.
https://www.forbes.com/sites/hewlettpackardenterprise/2021/11/04/thrive-in-the-age-
of-insight-4-steps-to-scalable-data-analytics-that-dont-require-an-it-makeover/?
sh=34f1f0c831ae
Darmody, J. (2021, May 17). Global chip shortage continues to wreak havoc on supply
chains. Silicon Republic. https://www.siliconrepublic.com/machines/chip-shortage-
supply-chains-autotech
Feder, S. (2021, August 9). Understanding the global chip shortage, a big crisis involving
tiny components. Popular Science. https://www.popsci.com/technology/global-chip-
shortage/
Global chip shortage: everything you need to know. (2021, August 18). CAR Magazine.
https://www.carmagazine.co.uk/car-news/industry-news/global-chip-shortage/
Hanbury, P., & hoecker. (2021, September 20). Two Lessons the Chip Shortage Taught Us
about Supply Chains. Bain. https://www.bain.com/insights/two-lessons-from-the-
chip-shortage-supply-chains-tech-report-2021/
robin. (2021, April 23). investors chronicles. Have Apple and Intel Found the Way around
the Global Chip Shortage?

https://www.investorschronicle.co.uk/news/2021/04/23/have-apple-and-intel-found-
the-way-around-the-global-chip-shortage/
Schoolov, K. (2021, November 6). How Intel plans to catch Samsung and TSMC and regain
its dominance in the chip market. CNBC. https://www.cnbc.com/2021/11/06/how-
intel-plans-to-catch-up-to-samsung-and-tsmc-with-44-billion-of-new-global-chip-
fabs.html
Segal, E. (2021, July 12). Worsening Computer Chip Crisis Shows Supply Chains Are Still At
Risk. Forbes. https://www.forbes.com/sites/edwardsegal/2021/07/12/worsening-
computer-chip-crisis-shows-supply-chains-are-still-at-risk/
Sohn, J. (2021, November 9). Semiconductor Industry Isn’t Spending Big on Scarce Old-
Tech Chips. Wall Street Journal. https://www.wsj.com/articles/semiconductor-
industry-isnt-spending-big-on-scarce-old-tech-chips-11636453801
Wu, X., Zhang, C., & Du, W. (2021). An Analysis on the Crisis of “Chips shortage” in
Automobile Industry ——Based on the Double Influence of COVID-19 and Trade
Friction. Journal of Physics: Conference Series, 1971(1), 012100.
https://doi.org/10.1088/1742-6596/1971/1/012100
https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-40--the-
next-generation-digital-supply-chain#
key points
Supply chain
Inventory network configuration, arranging, and activity choices assume a critical part in the
achievement or disappointment of a firm. To remain serious, supply binds should adjust to
changing innovation and client assumptions.
2.Push/Pull View: The cycles in an inventory network are partitioned into two classes,
contingent upon whether they are executed in light of a client request or fully expecting client
orders. Pull processes are started by a client request, though push processes are started and
acted fully expecting client orders.