Alex Saric, Smart Procurement Expert at Ivalua argues that there is a need for real collaboration across supply chains if the global shortage of semiconductors is to be eased
For the manufacturing sector, and automotive in particular, the chips are certainly down in 2021. Amid a global semiconductor shortage set to last for at least another year, manufacturers need to start preparing for the recovery and the rebound that follows. And for that they’ll need to be at the head of the queue among suppliers, through a collaborative and digitised procurement strategy.
A perfect storm caused by the pandemic, changing trade climates through events like Brexit, and logistics incidents as seen along the Suez Canal, has culminated in not just a disrupted semiconductor supply chain but a shattered immediate outlook.
With recovery efforts largely off the table in the immediate term, manufacturers need to start looking ahead instead. If they can’t acquire chips immediately, then they need to strike while the iron is hot once production ramps up. And that means forming critical supplier synergies and partnerships while those much-needed chips remain on the backburner.
To get a sense of the challenge at hand, you only need to see the gap between supply and demand. The demand for semiconductors in terms of worldwide sales totalled $123.1 billion in just the first quarter of this year – an increase of 17.8% on last year’s figures. However, the pandemic has disrupted chip production, which has decreased by 15%, and this is predicted to last until the second quarter of 2022.
The shortage has already led automotive manufacturers across the globe to temporarily suspend production. Estimates for the sector as a whole suggest around five million vehicles have been affected, with some manufactured vehicles simply waiting for a chip before they can be shipped.
Time for introspection
Automotive’s struggles have also been exacerbated by pandemic dynamics outside of the obvious production and distribution challenges. With more people at home, the demand for electronic goods has sky-rocketed, leading to a surge in orders for chipsets suitable for TVs, streaming devices and phones rather than automotive use, focusing chip manufacturer’s efforts elsewhere.
While inevitably damaging in the immediate-term, maybe a ‘disaster’ such as this was needed in order to reappraise the status quo. This situation has made the penny drop around the importance of agility and resilience in the supply chain.
When global connections, consumer trends, industry demand and manual forecasting are thrown into disarray at a moment’s notice, notions of supplier diversification, digital predictions, data-driven strategy and stronger collaboration all come to the fore.
And this is where attention should be focused while the semiconductor industry gets back on track. When supply does rebound, it will be those companies who have more robust supply chain planning, better risk monitoring capabilities, and stronger collaborative tools who can offset the current lull, and leap into action quicker next year.
Supply chain partnerships start by sharing insights as a team
As an opening gambit, organisations short in semiconductors could do a lot worse than trying to tackle the immediate challenge alongside their supply chain. By treating suppliers as partners in less lucrative times, you’ll have an enhanced sense of trust and understanding when conditions are more favourable.
Working together to support strategic objectives and solve problems, rather than just trying to drive down costs and seeing suppliers as a tool to cost-effectiveness, will do more than bolster the relationship. It’s more likely to yield new revenue streams, sustainable synergies and out-of-the-box strategies in a mutually beneficial way.
However, none of this can be done without transparency – an attribute that’s always undervalued. So much emphasis has been placed on data – its collection, storage, analysis, and application – but why does it have to just be ‘your data’ that informs strategy?
Giving suppliers the tools and data they need to collaborate effectively not only adds a further layer of trust, but helps to catalyse their processes and innovation capacity. And in return you are likely to receive similarly unique insight into their own industry trends or nuances. Risk is halved, while perspective is doubled.
A time for proactive, not protective, recovery
Given the events of the past year, the argument for diversifying and expanding the supply chain – in terms of how many, and where suppliers are geographically located – is also strong. The idea of reshoring to offset risk makes sense where possible, and may compound the idea of collaboration even further.
Taking this approachnow is so important from a semiconductor perspective because there will soon be a time for rebound. A time for proactive recovery, rather than just protective recovery. And when that time comes, the clamour to be front of the queue will be fierce.
Suppliers are likely to prioritise and place their trust in those that share the same values; that support their sustainability objectives; that understand how to transform data into actionable strategy; and who have shown similar ambition to improve their own insights across the supply chain.
And, overarchingly, those who are willing to go with them on their digital journeys.
Manufacturers with greater supply chain resilience can achieve improved margins, stronger revenue growth, greater product reliability, enhanced supply resilience, and better risk mitigation. All of which will help organisations build a competitive advantage.
But this all needs to come from a platform of digital maturity. By digitising procurement processes in order to enable deeper collaboration across the entire supply base, organisations will be showing supply partners that they want to share all of those initial benefits with them.
This is why manufacturers should be looking to adopt improved communication and collaboration tools to facilitate their own digital progress, while sharing capabilities with those they need to keep onside in the new world.
This resultant, collaborative front will mean both sides of the equation fare better when the next shortage comes, and can thrive like never before in calmer conditions.
Alex Saric is a Smart Procurement Expert at Ivalua
Main image courtesy of iStockPhoto.com