The electronic component industry has suffered its fair share of supply chain crises, but the current semiconductor chip shortage is unprecedented. It’s causing deep delays for all types of products right now — everything from cars to smart phones to gaming consoles. In some cases, suppliers are advising 20-plus week waits for affected hardware components like CPUs, GPUs and motherboards.
These shortages, plus higher demand, mean that B2B technology companies such as enterprise software developers, security system integrators and medical diagnostics providers urgently need a hardware plan for their product lifecycle.
Unprecedented Demand, Challenges
The industry had a short respite from constraints in 2020 when high-consumption manufacturers backed off their forecast, not knowing how Covid would impact demand. Their decommits pushed inventory back into the supply pool short-term, only to be offset by pent up demand when restrictions eased. But it’s more than high demand that’s accelerating the shortage. Other factors are adding fuel to the fire while also driving up hardware prices:
- Cargo delivery delays from global ports. Shortages of sea containers and vessel capacity, plus escalated sailing times are holding up deliveries. For example, arrivals from Shanghai to Los Angeles have extended from 14 days to 33 days.
- Congestion at U.S. ports on the West Coast. Container ships are waiting to anchor then sitting on some docks as long as five days before unloading. The slow pace is primarily due to spikes in imports, however Covid restrictions on physical distancing have also played a role.
- An ongoing shortage of long-haul truck drivers. One analyst says there are 80,000 fewer drivers than a year ago. Plus, there are still fewer freight-related flights due to lingering restrictions.
- Processor-intensive mining of cryptocurrency. Crypto mining’s dependency on GPUs and Crypto farming's (CHIA) demand for storage capacity is causing crypto miners to hoard GPUs and Crypto farmers to mass-purchase hard drives and SSDs.
Shortages Likely to Last
Congress’ approval of $50 billion in incentives and research for domestic semiconductor manufacturing, or U.S. Bill H.R. 7178, commonly known as the CHIPS for America Act, has allowed the industry to breathe a collective sigh of relief. The legislation will provide funds to help build U.S.-based semiconductor fabrication plants. However, it will take a minimum of 18 months for plant construction.
Also, Intel Corp. has announced plans to build two chip factories in Arizona to complement its existing facilities in the U.S. and abroad. Yet, production isn’t expected to start until 2024. These and other efforts to aid supply of components won’t occur soon enough to ease the burden on technology developers. Demand shows no signs of slowing down and many manufacturers believe these shortages will extend into Q2 of 2022.
How can technology developers of all sizes cope in these trying times and proactively reduce the impact from supply chain disruptions on their business?
1. Forecast early and buy what you can. Work with your hardware provider on an advance purchase program, which can cover specific types of components and minimum stocking levels. As far in advance as feasible, provide them with a forecast so they can evaluate your bills of material for constrained components and try to get ahead of the curve by reserving allocation with suppliers.
Be aware that even if you’ve forecasted and placed an order, you may have to accept partial fulfillments. For example, some manufacturers are only guaranteeing 50 percent of supply right now. If you haven’t forecasted, any efforts at escalation with the manufacturers will often be denied.
2. Capitalize on your hardware provider relationships. Measuring success in component procurement is more than squeezing out the lowest costs. Strategic, trusted relationships are immensely influential in the hardware supply chain. Hardware providers that have deep, established partnerships at each manufacturing tier are prioritized for sourcing materials.
Your hardware provider should also have in-house engineering expertise to offer viable strategies and alternatives. They can wade through specifications, performance, certifications, and more to meet your business’s and industry’s requirements. For example, an engineering review could uncover that your software will achieve the same performance architected with a compatible CPU that has better availability than its existing one.
3. Build what you can ahead of time. Can the hardware that runs your technology be fully or semi-configured and held in stock ahead of customer orders? Especially for components with shorter lifecycles like GPUs, having a safety net of product inventory may reduce or prevent lost sales, extend lifecycles, and even make you look like a hero to your customer.
Think about the threshold you’re willing to bear to go long on inventory now while supply is tight, considering that it will enable you to fulfill more orders and receive revenue sooner than the alternative of pushing out promise dates by weeks or months. If there’s one thing we’ve learned from the pandemic, it’s the need for resiliency and agility. The current component shortage is undeniable and unpredictable. How you respond to it, though, can make the difference between your business surviving or thriving.
Laurie Jones is the Director of Supply Chain for MBX Systems, a designer and builder of purpose-built and deployment-ready computing solutions.