Semiconductor shortages will strengthen the supply chain in the long run

The semiconductor market has been on quite a tumultuous ride the last year and a half, with unprecedented customer demand and a supply chain unable to keep up due to a variety of reasons. As we move toward a more stable supply chain in 2022, which I believe we’ll really begin to see in the latter half of next year, there are four major lessons I think we can all take away from the supply chain struggles the entire globe has experienced these last two years. I firmly believe that if we do take these lessons to heart, they can strengthen the supply chain in the long run and provide a more solid supply chain to weather future complications.

Backup methods are critical

What suppliers really learned through this crisis was how close they need to be to every element of their supply chain. Having backup plans for every element and not taking any element for granted has been key. And backup plans should be as wide as a variety of shipping methods, from air to boat to rail, and any mix of those three methods.

Extra inventory not a waste

Keeping a little inventory around is never a bad idea – you never know when or where supply chain disruptions can happen. Sadly, climate change is only going to get worse – we’ve seen more climate disruptions over the past five years than we’ve seen in the previous 20 years. Floods and fires have caused factories to shut down for extended periods of time, and earthquakes and tornados have wreaked havoc. All these shutdowns create major issues for a supply chain output.

Automated conveyor systems at Digi-Key’s distribution facility in Thief River Falls MN.

And we are seeing a real shift of more companies embracing just-in-case strategies rather than just-in-time inventory models. Even if a full shift isn’t a model your company can embrace fully, having a bit of backup inventory can be the key to tide you over in an emergency.

Digi-Key’s inventory model is more important than ever for the engineering community to be aware of the stock we have available. Today, Digi-Key offers 12.6 million parts from 2,000 suppliers, and since January 2021, we have added 500 new suppliers and 1.1 million parts. In addition to our core stock, we also offer 1.1 million parts from more than 850 suppliers through the Digi-Key Marketplace, augmenting the types of products that we don’t currently offer in our existing core business model.

Flexible circuitry will be key

We’re already starting to see engineers design more flexible bills of materials that allow for greater part substitution. Having the engineering community design more flexible circuits that allow for sourcing of three or four parts, instead of just a single, required component, will open up many bottlenecks and prevent them in the future. By designing with substitute possibilities in mind, engineers can account for interchangeability of items due to inventory in the future.

With a flexible practice of BOM management, designers can create a sub-level BOM for items they define as alternate options.

Global manufacturing

With the heavy dependency of the semiconductor supply chain based in Asia Pacific countries, the ability to transport product has been difficult. Getting product distributed throughout the world when transportation channels are clogged has been challenging to say the least. And while we are starting to see manufacturing spread out a bit more worldwide, it’s really important to understand where your suppliers’ foundries are located, and if they have the ability to manufacture products at different manufacturing facilities as needs arise.

New technologies will support strengthening

While everyone has struggled to stay afloat and keep up with demand and supply chain constraints, many new technologies have also been in the works to aid future supply chain issues. Digi-Key recently debuted a new video series called “Supply Chain Transformed” that follows the journey of components across the supply chain as they are integrated and incorporated into next-generation asset monitoring and tracking systems. The videos highlight the stops a product makes throughout its route from design to production, including warehouses, manufacturing facilities, shipping and more.

IoT sensors will be essential to tracking products through the supply chain in the future, leading monitoring and tracking to become smarter and better connected. Beyond smart sensors, emerging technologies include indoor positioning, robots and cobots, smart route optimization, and monitoring solutions to ensure the security, safety, and reliability of workers products, such as temperature monitoring, condition-based monitoring, and the use of blockchain.

Struggles will repeat

We know that the semiconductor industry experiences the bullwhip effect due to a variety of market elements including demand forecast updating, order batching, price fluctuations and rationing. This pattern will repeat itself, and therefore we must acknowledge that some of the same supply chain struggles will also repeat themselves. It will die down for a while, but a bullwhip always swings back up at some point.

We can lessen the size of the bullwhip by identifying backup methods, keeping some inventory on hand, designing with flexible circuitry, mapping out each foundry you do business with and deepening relationships with all your supply chain partners.

The last 18 months have shown us how important having the right supply chain partner really is, and it has also opened the market to allow more competition to enter and be part of the solution as well.

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David Stein, VP global supplier management, Digi-Key Electronics.

David Stein is vice-president of global supplier management at Digi-Key Electronics. Digi-Key is one of the world’s largest, full-service distributors of electronics components.

https://www.digikey.ca