Alexa, turn on the lights. Wherever we look technology is powering the way we live and the way we work. This new world presents a huge opportunity for businesses whether it’s a truly connected global workforce or improved customer experience. However, this means that there is a significant reliance on IT components for everything from laptops to cars to washing machines.
It would be difficult to get through the day without hearing about the semiconductor shortage and its impact on businesses and consumers. This is being caused by a perfect storm of external factors and it is important that businesses understand these causes, and the potential impact on their business and implement a plan to mitigate these risks.
We have set out how businesses can address the global challenge of IT constraints and mitigate against this risk to keep their business supercharged and ready to go.
The Perfect Storm
Firstly, it’s important to understand how we got here. There are multiple macroeconomic and geopolitical factors that have all contributed to the global technology supply issues. This was kickstarted by the US-China trade tensions which led to significant restrictions, component shortages, and subsequent production challenges. What followed was a seemingly endless domino line of events that tightened constraints.
The Covid-19 pandemic kept everyone at home and online which created an enormous surge in end-user computer demand whilst halting key production facilities. Then, as if a global pandemic wasn’t enough to contend with, we saw a series of natural disasters which included the flooding of semiconductor factories in Taiwan. Taiwan was dominating semiconductor production with 60% market share and this disruption caused considerable pressure on supply.
More recently, the conflict between Russia and Ukraine has created further pressure on the semiconductor shortage. Between 45 and 54% of neon, a key component of computer chips, comes from two Ukrainian companies that have both shuttered operations. This will have a knock-on effect on the future availability of chips and is a clear reminder that businesses need to continue to look at mitigation strategies because the perfect storm is not yet over.
Assessing the impact
The impact of this situation is being felt at all levels. According to a recent survey, 91% of IT decision-makers said that they had been impacted by at least some extent by IT supply chain disruption, with almost half of those leaders expecting to be impacted to a great extent.
The impact is also being felt at the very top table with Joe Biden’s senior economic advisor stating that the semiconductor shortage impacted reduced economic output by a whopping 1%. When you consider the scale of the American economy, the extent of the impact becomes quite stark.
So, what can be done? In the face of these challenges, there are steps that businesses can take to get on the front foot and insulate themselves as much as possible.
Firstly, it’s key that business leaders conduct an honest assessment of their understanding of the products that they use and sell – what are the components, where are they sourced, who are the key vendors, and do we need those exact requirements. For example, automaker Ford has been able to narrow its losses by identifying in-demand products and improving their inventory flow in line with that demand. This understanding must be on top form as the basis of any sourcing strategy as, interestingly, there are significant lead time reductions to be had with a few minor tweaks!
It’s also vital that businesses look to strengthen and deepen supplier relationships further down the supply chain to increase their chances of accessing key components. Through leveraging relationships businesses can get clarity on delivery dates and ensure that they are being prioritized.
Once businesses have a clear view of the situation and supplier base, it’s then a combination of careful planning and flexibility in approach. Forecasting as much as possible based on up-to-date data will help in keeping stock levels as high as possible. However, in the current situation, it will pay to be both flexible and creative both in terms of using alternative components but also in how you are delivering products to customers. Tesla, unsurprisingly, has taken this to another level as the company looked to rewrite software in order to remove their exposure to the chip shortage. Businesses must be creative in the face of constraints to achieve both immediate and long-term objectives.
There is no doubt there will be further bumps along the road and whilst we cannot predict the next component shortage curveball that is thrown our way, we must prepare for it. Staying ahead of the component shortages means staying ahead of the competition, safeguarding the future, and where there are challenges there is competitive advantage and opportunity.