The chip shortage shows the “just in time” trap

Semiconductor shortages are spreading in the global supply chain.Car factory is Idle Due to the struggle to locate semiconductors; consumer electronics manufacturers warn that shortages are spreading to the production of TVs, appliances and smartphones. A rare area in the economic policy agreement between the EU, the United States and China is that domestic chip manufacturing capabilities require government investment. But the main responsibility for strengthening the supply chain lies with the company itself.

Just-in-time manufacturing—parts arrive at the factory when needed—is one of the miracles of globalization. By coordinating the minute-by-minute movement of ship, train, and truck drivers across continents, car and electronics manufacturers can ensure that parts arrive almost as needed. There is little room for error in this lean production method, although the model often proves to be flexible and adaptable: as production is reorganized or relocated, the initial shortage of personal protective equipment during the pandemic has been overcome.

The current chip shortage is partly due to this see-saw of demand. Companies, especially automakers, cut orders during the first blockade, and it is expected that ordering too many chips may lead to inventory inflation. Recently, the combination of vaccination and government financial support has resulted in a recovery much faster than expected, leading to a surge in new orders. The blockade did not reduce the purchase of chips, but stimulated the purchase of electronic products for work and entertainment.

Geopolitics also played a role. Taiwan and South Korea produce the vast majority of standard commercial semiconductors used in automobiles and appliances, but these designs are usually licensed from the United States.decision U.S. government restricts technology exports Going to China means that some Chinese manufacturers have already stockpiled in anticipation of further restrictions. recent, Taiwan’s number of coronavirus infections rises This has caused some manufacturers to close their factories, combining supply constraints with a surge in demand.??

Just-in-time production keeps current costs low, but there is little guarantee for such interruptions. Automakers and other companies are now paying the price for production delays, missing sales, and damaged reputation—high inventory is an insurance against these later costs.

There is almost no reason for the state to bear these costs.The chip manufacturer is making Healthy profit — Sufficient to attract investment profits. As investment in factories soars, current shortages may even be accompanied by surpluses. Intel announced earlier this year that it will build two factories in Arizona, while Europe’s largest auto parts supplier Bosch opened a factory in Dresden on Monday.

Currently, companies are prioritizing “timely” rather than “just in caseProtecting the supply chain in the future requires changes in thinking and willingness to spend. This means hiring supply chain managers who anticipate and avoid bottlenecks by diversifying sources, cooperating with suppliers, and using smart technology to predict problems, rather than simply reducing slack For example, some chips are essential for defense and military use, but the delays faced by some automakers and consumer electronics companies are not a national security issue. Companies, not taxpayers, should secure the supply chain for their long-term interests.

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