Silicon Chip Shortage Disrupts Supply Chains

On February 11, 2021, President Biden explicitly stated: “If we don’t get moving, they’re going to eat our lunch.” He was referring to the Chinese.

That’s in stark contrast to his campaign statement that China is no competition for the U.S.

Those contradictory statements create uncertainty and risk for businesses.

Be that as it may, both will continue to disrupt supply chains. As a shipper, you need to understand that unchanging reality.

Let’s look at a case currently in the news: the global supply shortage of silicon chips.

Today, we have a global shortage of silicon chips due to the pandemic, trade policy, regulation, and former sourcing decisions. These four factors have combined to disrupt the semiconductor industry and the auto industry.

The pandemic created an explosion of demand as workers began working from home, affecting today’s availability. Also, trade policy restricting trade with certain semiconductor companies has affected the industry as well. Finally, past business decisions to source the production of semiconductors outside the U.S. have further exacerbated today’s semiconductor shortage.

With this one case, four different risk factors have combined to cause work slowdowns and stoppages at Ford (Kentucky), Toyota (China), Fiat Chrysler (Canada & Mexico). Also, Volkswagen stated the shortage will hinder operations in China, Europe, and the U.S.

This case illustrates the spontaneous nature of risks and their severe impacts.

The semiconductor and auto industry are in the middle of this crisis. So, out of necessity, industry stakeholders have focused on finding a near-term solution. That’s not a good situation in which to find yourself.

A better prospect is to position your company for success now. Successful businesses prevent, avoid, or mitigate the disruptive effects battering these industries now. They’re staking steps now to insulate themselves from what may come tomorrow.

This blog post will examine how you can build a more reliable, responsive, and resilient supply chain.


How You Can Prevent, Avoid, or Mitigate Major Supply Chain Disruptions 

Fortunately, there’s no shortage of ways and means to reduce risks to your supply chain. Two questions arise that will influence your supply chain risk management program.

  • First, how much you want to invest in thwarting the effects of a myriad of supply chain disruptions?
  • Second, what types of disruptions do you want to insulate yourself against?

But these aren’t the only questions to address. However, they’re the primary questions you must address from a big picture perspective. With that let’s look at several proven ways that work.

Diversify Sources. This one is not only obvious in our post-pandemic environment, but it’s also growing in popularity. Many companies are already doing this on their own initiative. And the recently signed USMCA also encourages near-shoring and onshoring. This new trade deal calls for tariff-free exports to the U.S. codifying a change in sourcing behavior.

Good business decisions, laws, policies and regulations can help to insulate supply chains.

Depending on the industry affected, this is a mid- to long-term solution. In the end, it will have a major effect on reliability, responsiveness, and resilience.

Relook Your Stockage Requirements. Stockage requirements at many companies are not up-to-date. They support yesterday’s requirements, but they aren’t relevant for today’s. If you haven’t reexamined your stockage requirement in the last few years, now is the time to dust them off.

As you recalculate your stockage requirements, you need relook your stockage goals. Informed by Covid-19, you should update stockage requirements from a strategic view. That is, you should consider the long-terms effects of disruptions on your operations.

Stock-outs ran rampant during the pandemic, and some companies are still recovering. However, increased stockage requirements lead to increased upfront costs. That’s a fact. But studies show they’re cheaper than the cost of long-term effects on your business. (See Reducing the Risk of Supply Chain Disruptions.)

Open and Frequent Communications. Comparisons of supply chains to living organisms are often made. That’s not absurd, and it actually makes for a useful comparison.

I’m sure you’ve heard of supply chains referred to as “living networks”. That description takes into account the interconnected nature of supply chains. And with the advancement of technology, those “connections” have multiplied.

So what capabilities do we get from living networks?

Well, we have instant communications. We have cross-domain communications. We have mobile communications. And we have global communications.

We have a variety of voice, email, and texting capabilities. All that has contributed to the expansion of networks and our reliance on those networks. And that has increased communications’ value.

It’s a critical tool that makes supply chains run. That’s an obvious statement. But it bears underscoring because without communications, supply chains can’t work.

It enabled real-time situation awareness, which has enabled real-time management of daily operations. It also enabled the ability to communicate with industry stakeholders and officials at all levels of government. That allows us to dialog and influence upcoming laws, policies, and regulations.

Effectively used and implemented, our communications networks help in preventing, avoiding and mitigating disruptions.

Leveraging Long-term Relationships.  There was a shift taking place in how we do business before the pandemic. The industry was shifting from a transactional-based business model to a partnership-based model. That trend as well as others has accelerated since the pandemic.

It only makes sense for shippers and 3PLs to seek long-term working relationships. That’s because today’s complex problems demand long-term thinking to create to long-term solutions. The semiconductor industry recognizes this. That’s why it lobbied Congress to address the bigger issue surrounding semiconductor shortages.

Meanwhile, notwithstanding onshoring and near-shoring, globalization still affects business.

We continue to operate in a strategic, global environment. And that requires strategic, global thinking. To address problems from a strategic view implies working more closely as partners. Working closely engenders trust that’s needed to identify root causes to festering issues.

As we discussed above with the rise of cross-domain communications, shippers and 3PLs can work collaboratively towards relevant solutions. That breeds and promotes innovative thinking, and that fosters customized solutions.

Against that backdrop your business can thrive in the short- and long-term. Disruptions will threaten your operations, but purposeful preparation can shield your business. You’ll be well-positioned to build a reliable, resilient, and responsive supply chain.


There’s No Reason for Being Blind-sided by Supply Chain Disruptions 

As we’ve written in this blog before, supply chain disruptions aren’t going away. On the contrary, they’re coming. And they’re increasing in scope, frequency, and severity.

As we saw with the case of the semiconductor industry and auto industry, disruptions may combine to wreak even greater havoc.

That’s the new status quo. Since future supply disruptions are inevitable, you must prepare today for tomorrow’s disruptions.

Are you slammed by the churn and challenges of daily requirements? Perhaps you don’t have time to even think about supply chain disruptions.

If one or both of these are true, there’s still no reason for being blind-sided by future supply chain disruption.

You can still build a reliable, responsive and resilient supply chain.

You can do that by working with a 3PL whose full-time job is logistics management.


Work with an Experienced and Expert 3PL

Why not benefit from third-party experience and expertise? You have nothing to lose.

At American Global Logistics we pride ourselves on being a relationship company. We look for long-term relationships with shippers because today’s problems require strategic solutions.

At American Global Logistics we take a holistic view of supply chain risk management. Our long-term partnerships help insulate our clients through strategic thinking.

We take both a defensive as well as an offensive posture to manage supply chain disruptions. And we manage disruptions before, during and after they occur. We’re proactive in managing disruptions. We respond rather than react.

Do you respond to disruptions, or do you react to them?

Contact us if you want to become more proactive in managing disruptions yet to come.