What’s happening to our high tech supply chains? Demand in recent weeks for micro chips seems to have caught everyone on the hop. According to figures released by the Semiconductor Industry Association, the global semiconductor industry is operating at 94 per cent capacity, up from 56 per cent in the same period last year. This will inevitably impact lead-times, as already seen with Altera, the US semiconductor maker, which has stretched lead times from 16 to 26 weeks.
Micro chip manufacture may be difficult to flex to demand given the high capital intensity of the operation and sophistication of processes involved, however, planning may have fallen short on this occasion as it may be that facilities that were mothballed some months back should have been prepared for this possibility of resurgence in demand. Were the taps turned off a little too vigorously when demand waned?
Such situations highlight the weaknesses in our supply chains and demonstrate the reliance we place on our suppliers. Shortages of vital components can now be seen in many sectors as industry bounces back – particularly so in the automotive sector; both Audi and Porche slowed production in some plants last month.
The trend to outsourcing has exacerbated this dependence on suppliers and has consequently increased supply chain risk. But, despite the increasingly critical importance of supply chains to the operating performance of industrial enterprises, the great majority of companies do not measure risk in their supply chains and most are quite happy to single source a component, often unaware of the dangers this brings.
Understanding where the risks in the supply chain are, and then measuring them, is critical to creating a more robust chain. Mitigating risk can be achieved through broadening the supply base, or where a supplier is pivotal to the operation, close dialogue is a must. At this point in the recovery, finance is still difficult to find and many suppliers are reluctant to invest, so getting the complete picture from your suppliers may help you reduce exposure to risks that are still very much at large.