The shortage of electronic components has been a significant global issue for some time now, affecting supplies since around 2018.
Numerous crises, especially the Covid-19 pandemic, combined with changes to consumer demand, have exacerbated this issue, resulting in crippling shortages in multiple areas, from the tech industry to the automotive industry.
In this article, we take a closer look at the factors behind the global shortage of electronic components, to help provide some industry insights on an issue that’s affecting us all.
Lockdowns
The series of lockdowns that occurred across the world in response to the pandemic created a massive demand for consumer tech. People who were unable to leave the house for the foreseeable future looked to purchase new tech-based entertainment solutions, from televisions to new game consoles.
As an increasing number of businesses switched to fully remote and hybrid working models, a significant portion of the workforce also had to turn their homes into offices, buying new computers, headsets and other items. The industry struggled to keep up, creating a massive strain on the supply of silicon chips, which continues to this day.
Automotive industry
The automotive industry has been hit especially hard by the global shortage of electronic components. Auto manufacturing was suspended almost across the board in 2020 as a result of the pandemic, resulting in car manufacturing massively cutting their orders for Chinese manufactured computer chips. Those suppliers in turn started selling those chips to other buyers, especially in the tech industry, temporarily alleviating supply chain concerns.
As auto manufacturing has started up again, attempting to return to normal as the economy has opened, semiconductor supply issues have been thrown to the fore once more. Previous suppliers are in many cases unable to provide chips in the quantities necessary, if at all. The impact on the automotive industry has been pronounced, with Ford stating that it has halted production in one of its German plants in an attempt to recover.
Likewise, Audi has announced a slowdown in production as a result of semiconductor shortages. The need to cut production by 10,000 cars per quarter has resulted in the company needing to put over 10,000 workers on furlough.
What can businesses do?
While in some cases the effects of these shortages are unavoidable, there are actions businesses can take to mitigate these risks. Developing and maintaining relationships with suppliers is a must, as is continued communication. Many suppliers are providing preferred customer programs for customers who commit to longer-term relationships.
In some cases, this may mean signing longer contracts, however, these longer contracts may help to provide further stability to supply in the future. Diversifying where parts are sourced from can also help; having all your eggs in one basket in a market showing such volatility is dangerous, and could have disastrous ramifications on a diverse array of companies.
Further reading:
https://www.instituteforgovernment.org.uk/publication/supply-chains/causes