Last Updated on February 20, 2023 by admin
After the COVID-19 pandemic, supply chain issues are prevalent. The ongoing chip shortage has affected many sectors. But one of the most affected industries is auto. In the auto industry, chip shortage is resulting in decreased production, and it is denting sales badly.
Semiconductors are now used in many consumer electronics, such as cameras, computers, and smartphones. Moreover, in the auto industry, they’re required for power steering and entertainment systems. This supply and demand gap has dented the auto industry because manufacturers have cut down production, and a decrease in sales has resulted in profit loss.
Simply put, chip shortage is because of the supply and demand gap. During COVID-19, companies ordered employees to work from home. As a result, the demand for technology increased exponentially.
The COVID-19 Delta variant has impacted operations in South Asia. It resulted in a further gap in supply and demand. Car companies canceled orders because of a lack of semiconductor supply. Moreover, we have seen a massive shift towards electric vehicles that have caused further strain on the already affected industry because automation and electric vehicles require more chips.
As mentioned earlier, due to COVID-19, the demand for tech devices increased significantly. Original Equipment Manufacturers (OEMs) follow the “just in time” strategy to manufacture semiconductors and other vehicle components. They do this to optimize inventory costs.
Due to a decrease in auto sales during early 2020, OEMs decreased their chip orders. So, they faced a significant drop in sales and profits. In contrast, companies that don’t follow a just-in-time approach are in a better position. They have more capacity and resources, and they can take more orders.
Due to uncertainty, companies reduced their production. Moreover, travel restrictions also resulted in a supply and demand gap. Therefore, manufacturers were still looking for their desired number of chips. As a result, their sales decreased.
Another factor for the supply and demand gap of chips is the Russia – Ukraine War. Semiconductors contain rare metals such as palladium, and Russia supplied 25 to 30% of this metal. On the other hand, Ukraine provides 25 to 30% of neon gas.
Moreover, semiconductors are transported by air, and due to a decrease in the shipping volume, transport cost has also increased. Chips manufacturing companies are not getting critical components. That’s why they have reduced their production.
Some manufacturers were ordering chips from Tier 1 suppliers, and they were charging more. As a result, there was a massive decrease in profits for manufacturers.
These are some of the challenges that the lack of semiconductor supply has caused for manufacturers.
There is no short-term solution to the chips crisis. Companies need to increase production, but for this, they need new plants or to revamp their existing units. But it will take at least three years.
Moreover, lead time for manufacturing companies has also increased since 2020. It has made expansion more difficult.
It doesn’t look like this problem will be ending soon. But the following practices can decrease the supply and demand gap. For example, manufacturers should look for new suppliers. They can search for local suppliers if they can’t get supplies from South Asia.
Secondly, they should have multiple vendors. If one vendor doesn’t have enough supply or they’re unable to fulfill the order, the second vendor can fulfill your order. Chip manufacturers should increase chip manufacturing. They can increase inventory storage area.
Finally, manufacturers should contact a PCB design company. It seems the best option because an electronic design company can help you get a custom PCB design according to your needs. It will ensure you don’t waste your money or buy useless chips. The following solutions can help manufacturers overcome the supply and demand gap and increase their profits.
Sometimes companies don’t understand their semiconductor needs. They fail to consider all the factors that result in the supply and demand gap of semiconductors. But having strong technology roadmaps in place helps manufacturers contact OEMs and discuss their needs. As a result, the chip manufacturers will produce enough volumes to help them fulfill custom vehicle orders.
When auto manufacturing and electronic manufacturer companies discuss their semiconductor demands with suppliers, they produce enough chips that don’t let the shortage arise. As a result, the manufacturer will not face any delay from suppliers. The demand forecast is the best option to avoid the supply and demand gap.
Various tools can help drive insights about the required quantity of chips. Moreover, they can help improve the planning process.
On this, people have different opinions. For example, JP Morgan Research shows that the chip shortage will end by the end of 2022. But at the same time, they feel that the available chips might not be right to satisfy all demands. On the other hand, Volkswagen believes that chip supply can’t meet auto industry demand until 2024.
We have seen a decrease in demand for consumer electronics, such as PCs and smartphones, since March 2022. But the issue is these chips can’t be used in the auto industry. Chips required for autos are different from those used in PCs and smartphones. Generally, automobiles require older chips.
No doubt, semiconductors are crucial for many electronics and auto manufacturers. Chip shortage has affected these industries badly, and they have reduced their sales and profits. In this article, we have discussed challenges that manufacturers face due to chip shortages and shared solutions to overcome this ship shortage issue.
PCB design companies can play their part in producing chips locally to decrease this gap. So, manufacturers should contact Arshon Technology for professional PCB design services. It can help them get back on track and increase their profits again.
Author: Anna Mohammadlou IoT Hardware Designer at Arshon Technology Inc.