Consumer Goods industry dealing with the semiconductor chip shortages?
Laptops, tablets, phones, gaming consoles: the devices that keep us connected to friends, family, and colleagues have been in high-demand over the past year, and it's been a big win for the semiconductor industry that produces the tiny chips that power all those devices.
Despite a successful vaccination rollout, the impact of the pandemic outbreak is still being felt across numerous industries, especially those dependent on semiconductors. Supply chain issues are widespread, with the present chip shortage denting sales and holding up production. Semiconductors or chips are a significant element in manufacturing consumer electronics products.
According to Goldman Sachs research, the prices of many electronic goods and components could increase by 1-3% shortly.
Why is there a chip shortage?
The present chip shortage is due to strong demand and no supply. This stems from COVID-19 lockdowns in the second quarter of 2020 when demand for work-from-home technology increased exponentially. As demand grew, companies found themselves competing for semiconductor capacity. This global chip shortage has halted the production of consumer electronics worldwide. This has sent manufacturers, product enterprises, and end consumers into turmoil. Manufacturers are trying to tackle situations in the volatile customer tech market. However, the ongoing global chip shortage crisis will likely last through 2023. So, organizations are required to proactively take necessary steps to navigate the same and prevent similar setbacks in the future.
Current Bottlenecks - Less supply, more demand
According to a report, lead times for semiconductor value chain expansion may take three years. This translates into the ecosystem achieving reliability by late 2023 or early 2024. The value chain is pricked with bottlenecks such as shortage of raw material, limited fabrication buildout, wafer throughput at 100%, and OEM disruption due to limited supply to end-users. This has resulted in increased resolution timelines.
Navigating through the short-term impact, the front-end fab capacity can't expand to meet the increasing demand. Moreover, there is no linear production and growth. Production of additional chips is limited compared to the rising demand for technology devices such as iPads, laptops, and more. This restriction is due to a shortage of raw materials. The result is a sudden drop in profitability.
How can the consumer goods industry respond to the current situation?
The global chip shortage issues, now affecting over 160 industries, may negatively impact consumer electronics availability this holiday season. Numerous leading component makers have ramped up their production line to mitigate the impact. Here are some insightful strategies and recommendations to help industry players navigate the upheaval to meet consumer demands.
Expansion of fabrication capacity
Diversification of global manufacturing and expanding fabrication abilities is one solution that semiconductor organizations can explore in the coming times. Most of the shortage comes from manufacturing line capacity with maxed-out components such as power management chips. These chips are manufactured in obsolete plants and utilize older manufacturing equipment. Modernizing the technology and enhancing the capacity here is also a crucial part of the solution. This also involves better design portability and making second sourcing part of the design workflow for every new chip design.
Rethinking government measures and policies
The proposed actions and initiatives undertaken by various national governments aim to strengthen their position in the semiconductor value chain. This can also assist in increasing self-reliance and create better opportunities for international collaborations.
Timely response to market changes with the assistance of predictive insights
Developing the correct blend of predictive insights and analytics abilities for companies to navigate such a disruption is necessary. This can help respond to the crisis swiftly and effectively while also multiplying impacts across the operating strategy. As per the study, companies looking to overcome the global chip shortage crisis should take the following steps.
- Enhance traceability and visibility across the supply chain
- Conduct real-time market monitoring to identify bottlenecks
- Backup supplier network to enable agility
- Collaborative supply planning
Final Thoughts
Industry leaders need to streamline and re-evaluate their company strategies to ensure sustained growth and avoid re-entry into similar situations. Maintaining business continuity plans, tracking competitive dynamics, adjusting demand planning in real-time, updating product pricing, and assessing trade environments are all important aspects.
At Polestar Solutions, our connected planning solutions assist you to resolve your most pressing business challenges – from recognizing competitive threats and growth opportunities to staying future-ready. To learn how to get a holistic and more accurate view of the market, get in touch today!