Art Figueroa, vice president of operations and quality for North America and EMEA with Smith, addresses the severity and impact of the semiconductor shortage, and offers insight into how long it will last.

Supply chains have always weathered disruptions, but few if any have lasted as long, or wreaked so much havoc on manufacturers, as the current shortage of semiconductors. The combined effects of the COVID-19 pandemic and a surge in consumer demand have brought some operations to a virtual halt, and caused others to drastically cut back on production.                                                                                                                            

The companies that are most affected by the shortage are those that adopted just-in-time inventory strategies that eliminated safety stock from their system. As a result, when supply became disrupted or proved inadequate to meet demand, they had no source of emergency inventory on which to draw.

The failure to build supply chain resiliency has exposed manufacturers to another threat — that of counterfeit chips. Producers who are desperate to keep plants working are drawing on these supplies. “It’s a short-sighted approach,” Figueroa warns, adding that the long-term impact includes the possibility of quality issues in critical components and high-tech products.

There’s no quick fix to the semiconductor shortage; it takes years and huge investments to build the new fabrication plants that will be needed to satisfy demand. “We see this as a situation that’s going to continue for at least the remainder of this year, and potentially all of 2022,” Figueroa says.

A certain amount of short-term suffering, therefore, will be necessary. But in the longer term, manufacturers need to amend their inventory strategies to allow for buffer stock that can be deployed in emergencies. “Think of it like homeowner’s insurance,” says Figueroa. “You don’t always need it, but when there’s a fire, you’re glad you have it.”