Supply chain scarcity: a new reality for every business
The pandemic and events from the Ever Given to freak weather have exposed weakness in the global supply chain. How should we respond?
For the first time in decades, global supply chains are stumbling. A perfect storm of unrelated events has suddenly exposed how very dependent we are on a long, complex global supply chain, and we’ll be feeling the pain in our businesses and our wallets in the coming months.
Last night, I got an update for a Kickstarter I backed for a combined webcam, ring light and microphone — the perfect digital accessory for the remote work age. Shipping will be delayed, by a month or so because of… global supply chain problems. Now, let’s be fair here. Late Kickstarter projects are far from unusual. But this is one from a reliable manufacturer, who has always hit deadlines in the past.
Even Apple, long regarded as the supply chain master under CEO Tim Cook, is thought to be struggling.
But during its Q2 earnings call, the company noted it expected to see the impact of the chip crisis affect Mac and iPad supply. Apple vendor Foxconn also recently warned about the situation worsening.
The shrinking semiconductor supply chain
One major supply chain that underlies the digital world is really struggling: semiconductors. This essential element of the chips that power our digital life has become scarce. We’ve seen increased demand, as we all equipped ourselves to work and educate our children from home. This unfortunately co-incited with reduced supply as lockdowns hit manufacturing and logistics operations. Anyone who tried to buy a new webcam in the middle of 2020 will be very aware of that…
These problems show no sign of abating:
A worldwide shift towards working and studying from home during the Covid-19 pandemic triggered a “cycle of explosive growth in semiconductors” that exerted unprecedented strain on global supply chains, Intel chief executive Pat Gelsinger told the Computex trade show virtually.
And the bad news keeps on coming. New outbreaks of COVID-19 in Asia have led to further delays. After a year of sales growth, however, PC sales are declining, partially due to falling demand, but also due to supply chain constraints. And so, this is doing little to ease the problem.
Fine, you might say. Bad news for the tech guys, but how does that impact me? Well, the semi-conductor shortage is having ramifications far beyond the traditional digital product lines, though:
Auto manufacturers have signalled they expect to lose out on $110 billion in potential sales this year, due to a shortage of parts
As everything becomes connected, demand for the material needed to enable that connection grows. The shortage is filtering through into product supply quickly because, over the last 50 years, the majority of manufacturing has moved over to a just-in-time (JIT) model. This is based on the idea of manufacturers holding little stock of supplies, and getting them delivered just in time for assembly. Equally, the end client tries to minimise their stock, manufacturing it to meet demand. It’s been a fantastic system for reducing prices and boosting product quality. But it has one major drawback, as we’ve all just discovered.
Just in Time might be out of time
Yes, it’s the global reliance on just-in-time manufacturing that underlies the problem, as John Naughton explains:
But JIT critically relies on an efficient, reliable and robust supply chain. If the chain falters, then everything grinds to a halt. This applies whether the part is a gearbox or a silicon chip and over the last two decades chips, particularly in engine management units (EMUs), have become vital to the functioning of even the humblest petrol or diesel vehicle. We’re heading towards a future when cars will essentially be computers with wheels. But even now, if the relevant chips don’t arrive, then it’s crisis time.
We’re now entering a vicious cycle, where the shortage leads some manufacturers to hoard, both exacerbating the shortage and pushing up demand. And this impact is spreading way beyond just electronics:
Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. “You name it, and we have a shortage on it,” Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said on a call this month.
This isn’t just about the pandemic. The Ever Given disaster — when a huge container ship got stuck in the Suez Canal — has led to shortages of the strangest things. The UK, for example, is “suffering” from a lack of garden gnomes. One can only pity those poor remote workers whose home office garden view lacks the grace of a cheery gnome…
Multiple vulnerabilities in the global supply chain
But the underlying point here is not about the terrible effects of gnome deprivation. It’s about a single point of failure — the canal — that we’d stopped worrying about. And there have been other challenges, like freak weather, which is likely to become more common as the climate changes, and even hacking of fuel pipelines.
In a single year, the vulnerability of the global supply chains has been horribly laid bare.
And that’s before we get to more critical bits of supply infrastructure like, for example, that behind vaccine manufacture and distribution. Now we’ve experienced first-hand the devastation wrought by a global pandemic, it would be a brave country that wouldn’t be looking at ways of making itself more self-sufficient in vaccine production capacity. And hopefully, governmental memories will stretch back to the PPE shortages last year, too.
What, though, does this mean for the rest of us?
Surviving a supply chain constrained future
As we eye our product pipeline, we need to be asking ourselves: Can we be resilient? Can we be fluid? Can we adapt what we do to these sorts of shortages?
For those of us working on digital products and services, we might want to think more aggressively about making sure that our offering works on as wide a range of existing devices as possible. We can’t necessarily rely on business or consumer upgrade cycles to give us slack on that. For those of us shipping physical devices, we might have to think more deeply about both resilience and redundancy in our supply chains.
The era of supply chain stability may well be over, and rethinking how we do business in that context will be yet another evolutionary pressure in the world of digital commerce.