Global supply chain issues continue to plague companies and some industries as further lockdowns in China have a knock-on effect on the country’s manufacturing metropolis.
According to experts, the global supply chain is in much worse shape than even in the middle of the Pandemic. The local outbreak of Covid-19 in China’s biggest city, Shanghai, has caused all but a collapse in the global supply chain, with air freight warehouses log-jammed for several weeks.
Things are dwindling in the city’s ports as well. An estimated 120 container vessels are stuck, and the shipments have been delayed. The world’s manufacturing capital, Shenzhen, is also facing some major supply chain issues. Trucking costs have shot up over 300%, causing a global shortage of semiconductor devices, including microchips.
Almost all major ports are no longer running on schedule, and global chipmakers face a crunch.
Chip Shortage and An Increased Demand
The chip industry was already braving global supply chain issues even before the pandemic. Insufficient capacity in the factories, lack of supply of raw materials, etc., were issues long before the pandemic hit. In early 2020, as auto sales plummeted, the automakers cut their orders. However, demand rose in the second-half of 2020 to an almost unexpected level.
Although the global chipmakers have increased production, the recent global supply chain disruptions are causing more problems. Simply switching the supplier is also not an option for most tech giants. It takes over a year to switch suppliers as the chip design needs alterations to match the manufacturing process of the new supplier.
The Russia-Ukraine Conflict Creates Another Issue
Supply lines for aluminum, nickel, and silicon have been severed due to the ongoing Russia-Ukraine conflict, affecting global chipmakers.
Supply chains are too complex and interconnected and are not immune to shocks like pandemics and war. However, with wave after wave of the pandemic hitting various countries, the global suppliers are forced to change and evolve. Backlogs and breakdowns are the new normal, and finding a way to move goods during these events is a huge challenge.
Given the current global scenario, the shortage of semiconductor devices does not seem to be ending anytime soon. It has been estimated that typical lead times can exceed four months, and many companies are being forced to delay their product development and hold back on new product launches.
Several global chipmakers have already started to reconsider their strategies. Rather than relying on the ‘just-in-time’ ordering model, several companies are adapting to a model depending on advance orders.
The global supply chain crisis has thankfully not affected the profitability of the semiconductor industry. The industry is growing steadily and is expected to continue growing despite supply chain issues.
Industry Leaders Explore Solutions
There does not seem to be a quick solution to the global supply chain crisis on the horizon. Furthermore, rising tensions between the US and China are compounding the issue. Many companies are now looking to diversify their chip suppliers rather than rely on one company.
Trying to manufacture semiconductor devices and chips outside of China might seem to be an option. Still, according to the industry leaders, it is nothing more than a fanciful notion. The connections between the US and China are too deep, and trying to change the status quo can mean destabilizing the entire system.
According to most experts, the only solution to the supply chain crisis is to invest in making more resilient supply chain lines for the future. For companies, offering greater visibility of their supply chains can be a better option to foresee any problems or gridlock. Allowing the goods to be tracked as they move through the supply chain can greatly benefit most manufacturers.
Things are not looking to improve soon, and we might be embarking on an era where disruptions in supply chains are the new norm.
