When the chips are down

3 min read

As manufacturing starts to ramp up after the pandemic, the efforts of many companies are being thwarted by the global shortage of chips.

One of the industries hit hardest is automotive. As car plants shut down and orders were cancelled, the chip suppliers found other growing markets such as the burgeoning cloud infrastructure providers consumer electronics, which saw demand skyrocket when people began working from home. Now, along with other electronics manufacturers – large and small – the automotive industry is struggling to restore supply.

With extended lead times and shortages becoming more common place it’s more important than ever to keep a close eye on your bill of materials for all your products. Instances of components previously on normal eight-week lead times are now regularly seeing in excess of 26 weeks and this is leaving companies with either large volumes of product that cannot be completed and stockpiled materials, or constant rescheduling. The impact on end customers creating further uncertainty and the inevitable over ordering or double booking only serve to make the situation worse.

We are now seeing the impact hitting such staples of electronic manufactured products as smartphones, tablets and PCs, with new releases being postponed. With the high-volume manufacturers impacted, companies with lower volume products are also struggling. Where they were once able to mop up excess quantities of chips via distribution channels, these are drying up.

Covid-19 and the subsequent relocation of workforces to home have fed the ‘perfect storm’ - reducing available capacity within the industry, while increasing consumer demand for home office and home entertainment equipment.

When will it end? Gartner analysts said they expect the worldwide semiconductor shortage to last until the second quarter of 2022. But even then, there are some component lines

that were mothballed due to low worker availability, that may never come back as manufacturers focus in on the volume, high margin components first.

What can you do?

Can you play a waiting game and hope that things will improve quickly as we come out of lockdown? Yes and no; some companies may choose to wait out the supply situation, but they may be left in a position where their customers go elsewhere while they are unable to deliver. Unfortunately, it’s still unclear at the moment whether this is a short-term issue or a longer one that could run for the next two to three years.

While there are alternative components available, these may not be in the same package or have quite the same performance. In a lot of instances, during the design process, companies simply look for a chip that does the job and stop there. They do not go the extra mile to look for alternatives or develop a strategy that has dual sourcing as one of its core principles. There are lessons to be learned here for future designs.

Is it realistic and cost-effective to re-design PCBs? With some examples of a $0.71 IC being offered to the market for $43 in small volumes, the option of re-design looks more attractive to mitigate risk and alleviate lead time pressures, despite the cost and hassle. In this scenario you can choose to design out the chip or look at making your product more flexible in order to accept alternatives.

But it’s not a simple process and there is not guarantee that the new part will not have similar issues in the future, so an element of design flexibility and longevity are key. Then there are mechanical issues and the fitting of the new design into existing form factors. Sometimes external review can offer a different perspective, questioning those elements that some manufacturers may consider sacrosanct. Then there are changes to manufacturing processes that may be needed, which will be impacted by the scale of production and level of automation.

Accentuate the positive

These are not insignificant challenges but with no clear sign to the end of the chip shortage, many companies may have little choice if they want to stay in business. Trying to find a positive in the situation, it is a good time for manufactures to reflect and reassess changes to design processes and supply strategy, reducing waste, transportation and overproduction while improving yields and resilience. All these elements can make a difference to companies believing they are working efficiently but not effectively. By addressing the immediate ability to manufacture, it is possible to future proof your designs for years to come.

Author details: Gavin Smith, Head of Manufacturing at Plextek