Why is there a global shortage of semiconductors ?

By Laurent TUFFIER
A graduate of the IAE Caen School of Management in Operations Management, Laurent Tuffier is the Supply-Chain Director of Bosch Mondeville. He has been leading a team of purchasing and supply chain specialists in the field of electronic sub-contracting for over 20 years.

A global shortage of electronic components, particularly semiconductors, has been experienced since the last quarter of 2020. Semiconductors, small silicon chips, are present in all electronic devices.

The reason 

In the spring of 2020, semiconductor manufacturers had to stop production abruptly because of covid 19. Not knowing when or how to resume operations, they limited their investments in production facilities as a precaution. After the summer, the markets recovered suddenly and significantly, especially the automotive market.

Demand for semiconductors surged in order to make up for the delays of the first containment. In addition, the containment measures led to an increase in sales of computer equipment to allow employees to telework, or to meet the need for entertainment in confinement at home. For example, more than 300 million PCs were sold in 2020. Added to this are the communication requirements for the transition to 5G, which alone consume more than a third of the world’s semiconductor production capacity. 

The semiconductor market is worth almost $440 billion and is the subject of a technology war between the major industrial powers around the world.

To manufacture semiconductors such as microprocessors or memories, it takes an average of 26 weeks, i.e. about 6 months. The market was therefore confronted with a sudden increase in demand which exhausted the stocks of available components before the supply chain could be restarted.

It should be noted that the economic war situation between the US and China has further aggravated the situation as semiconductor manufacturing sites outside China have been overloaded.

In addition, due to the extreme weather conditions in Texas this winter, industrial activities had to stop for several days to avoid over-consumption of electricity. This event exacerbates the shortage of semiconductors manufactured in Texas’ Silicon Valley.

Faced with this global crisis, Bosch had to find a solution to avoid being too heavily impacted.

How does Bosch Mondeville overcome this shortage?

Bosch has created a “Task Force” which has been centralising actions since the beginning of the crisis: it is a single point of contact for critical suppliers (STM, NXP, Renesas, Kyocera, ADI, etc.) and arbitrates the allocation of parts to each Bosch factory (principles of “Fair share” and “Pro-rata”).

Bosch can thus benefit from a grouping effect of supply volumes allowing for better resource management.

Thanks to the massification effect in Bosch’s international purchasing and logistics, the relationship with suppliers is handled at the highest level. This also influences the availability of components.

A substantial improvement in the situation should be noticeable from May onwards, although some critical components may still have supply difficulties until the end of the year. Electronic component manufacturers have been taking initiatives since the end of 2020 to restore production capacity to meet demand.

Working with Bosch means that you can rely on one of the most efficient component supply organizations throughout the product life cycle.

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