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Almost daily we are seeing some new piece of news regarding the impact of the global chip shortage. To many, it feels like this came out of nowhere, but in reality, this has been a potential outcome for some time. Government trade restrictions, issues in production and the COVID-19 pandemic formed the perfect storm in 2020 and got us to where we are now.
Many items that we use on a daily basis has some sort of chip in it. Cars, PCs, phones, gaming consoles, and smart appliances—just to name a few—are part of the hundreds of thousands of devices that are impacted by the global chip shortage. This perilous domino tipped and now are seeing the repercussions in industries all over the world.
Feeling the Impact in the Auto Industry
Just this past week, Ford announced an expected $2.5 billion profit loss over the next year and second quarter production will be cut in half. This is the following similar announcements from Volkswagen and Mercedes-Benz that have been dealing with supply problems as well. Potentially, employees could be laid off, other upgrades to manufacturing equipment could be delayed, and profit will be eliminated from local economies, just to name a few outcomes. The ripple effects of this supply problem could be felt for years since no industry operators.
Feeling the Impact in Our Devices
Qualcomm and Samsung have announced that there could be serious ramifications for laptops, cell phones, and other devices over the next year or so. Apple also came out after its huge quarterly result, warning of a likely product shortage due to supply chain issues. As technologies like 5G continue to infiltrate our society, these devices will require upgrades to take full advantage. But with supply decreased, new devices could potentially be hard to find creating problems on the customer side of operations. When the name of the game is customer experience, tech companies will need to be prepared to be transparent about how long it will take to fulfill orders if they want to get out of this relatively unscathed.
Building Resilient Supply Chains
All of these effects beg the question: How do we shore up supply chain vulnerabilities like this now and in the future to avoid catastrophic outcomes? Before we move on, I want to get real here for a moment. It’s easy to drop buzzwords like “resilient supply chain” and “transparent supply chain” without ever taking time to truly understand what they mean from a customer and business perspective.
For instance, on the customer side, it can be difficult to understand why car production or cell phone production might slow down, even after months of increased demand. On the business side, it can be nearly impossible to explain to customers why those delays are happening. Some companies didn’t really understand themselves how unreliable their global suppliers would be in that situation. Others didn’t have a clear handle of how hard it would be to change their manufacturing lines. And at the end of the day, no one really understood how to communicate those realities in a way that anyone would understand, much less empathize with.
As we plod through 2021, it’s clear that businesses are desperately trying to get a better handle on supply chain visibility as a part of both economic recovery and digital transformation. Truly, there is no moving forward without it. For its part, the government issued the Executive Order on America’s Supply Chain, promising to review risks impact the country’s supply chain systems within 100 days. That alone was a huge admission on a national level that the supply chain was not working to an acceptable level in 2020. While I don’t think this will have any real impact in the short-term, it solidifies the perilous nature of the current situation.
The U.S. government, however, can’t really force technological innovation on global businesses. That’s up to every company to do on its own. So, how can your company go about making its supply chain more resilient and visible in 2021? Luckily, big tech is stepping up to help make that mission a reality.
Investments in Production
Most tech CEOs agree that it will take at least into 2022 if not longer for this issue to fully resolve itself. But many aren’t waiting around for things to get better. Intel announced a $20 billion investment into fabrication plants in Arizona. And they are not alone. Samsung is reportedly considering a similar move while Taiwan Semiconductor Manufacturing Corp. is reportedly investing $35 billion in the same market.
Manufacturing semiconductors stateside would eliminate a number of issues with shipping, international tariffs, government regulations, and any other cyber security concerns. But only time will tell how quickly it will have an impact on the industry—in short, these are longer term fixes rather than quick wins to meet short and mid-term demand.
Improving Supply Chain Management – Semiconductors and Beyond
One of the main issues associated with supply chain management, especially in 2020, was inventory management. Meaning: companies did not have a solid understanding of how much inventory they had, where it was either in the country or across the globe, how much their suppliers had, and the timetables it would take to create and ship inventory amidst growing demand. To be fair, in the early part of the pandemic, there were vast discrepancies between expected demand and actual demand for many semiconductor intensive items like mobile devices, laptops, and even automobiles. With the economy set to be in turmoil, it wasn’t expected that there would be such robust demand in these areas.
IBM reports that more than 60 percent of businesses expect to be disrupted by a competitor with better supply chain management within three years. Take a moment to digest that. Not a new app. Not a new product. Not even a new business model. Supply chain management—one of the most basic functions of running a business—is expected to cause the disruption. That shows how essential it is going to be in the coming decade.
IBM, for its part, is working to help companies build more resilient and transparent supply chains with its Sterling Supply Chain Business Network, which claims to provide 335 percent ROI within three years of implementation. It’s not the only one. Panasonic recently announced it would be acquiring Blue Yonder supply chain software to the tune of $6.5 billion in its own bid to get into the supply chain mix.
In other recent research, our team at Futurum Research partnered with Capgemini to look at just how critical the supply chain is to long-term robust growth. While there are vast technologies and solutions for supply chain optimization, we saw how some of the world’s largest and most technologically advanced companies can be impacted by a flawed demand forecast, or poor materials planning. The utilization of data, machine learning, and the right expertise rose to the top as a necessity for businesses to stay competitive and reduce supply chain risk. Investment in this area is a digital transformation must.
Regardless which technology and advisors you choose to work with, the point is: you need to be decisive. While the pandemic shows signs of waning, the fact remains that the world itself will never be the same. The threat that we experienced this past year has changed the perspective of the entire marketplace in terms of emergency preparedness and the most basic terms of business survival. Being able to make accurate counts on inventory, supply and demand, manufacturing timetables—these are table stakes. What’s more, they do not require a crystal ball. There is enough technology tools for data, analytics, visibility and coinciding AI/ML on the table NOW to begin harnessing our supply chains for all they are worth. It is simply a matter of changing our perspective, and making the critical investments to make supply management a priority.
No, supply chain management is not necessarily sexy or exciting. But neither is basic human survival. And that’s all any of us really wanted in 2020. It’s time to return to ground zero and focus on the basics of keeping our businesses running—and our customers safe and happy. That is what supply chain resilience means in 2021.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.
The original version of this article was first published on Forbes.