The supply chain blueprint: Addressing the chip shortage with a redesign
According to SEMI CEO Ajit Menocha, a chip has to travel over 25,000 miles and cross about 7 country borders before it becomes a finished product. He was talking about the supply chain initiative SEMI had started last February to address chip shortages in the industry.
“If we look at the history of our industry, before the US-China tariff issue started in 2017 or 2018, we had a Just-in-Time (JIT) supply chain philosophy when securing parts, spares, and materials so that we wouldn’t have to carry the cost of inventory,” he explained.
“It travels more than 25,000 miles in terms of everything needed to make a chip before it is ready for the customers. So, we have had a strong interdependence on multiple countries to make the final product. And the JIT phenomenon didn’t work very well.”
Substrate materials could be made in Japan or Germany, while some copper components came from the US, Europe, or Japan.
Further down the value chain comes wafer fabrication, assembly, testing, and packaging, of which there are many in Southeast Asia, China, and Taiwan.
“It travels more than 25,000 miles in terms of everything needed to make a chip before it is ready for the customers. So, we have had a strong interdependence on multiple countries to make the final product. And the JIT phenomenon didn’t work very well.”
Of course, recent developments like climate change, geopolitical issues, and export control restrictions are further compounding delays and disruptions from the previous few years.
The current chip shortage would take some time to right itself. Besides the industry making more equipment and wafer fabs to increase chip-making capacity, SEMI seeks to resolve the shortage in an industry-collaborative manner via a supply chain blueprint.
“If you look at all the forces coming into play, the supply chain (route) needs to be redesigned,” he said.
The supply chain blueprint
Ajit mentioned that it is a little too early to see a final blueprint.
A format of two working groups that are Agility-focused and Resilience-focused has been ascertained, and to date, there are 8 Industry Advisory Council (IAC) members, such as TSMC, Merck, Schneider Electric, Intel, KLA, Infineon, Google, and ASE.
Ajit hopes to add another 12 companies as IAC members by the end of 2023.
“We are not going to tell them, here is the way you should do the supply chain Rather, the blueprint will have scenarios and recommend technological tools that can be used.”
He also explained that SEMI would work with the industry to come up with the blueprint, but it is up to companies to take it and customise it for their own proprietary supply chain process.
Industry voice
The light-touch approach SEMI takes when it comes to dialoguing with countries that have tensions with each other, is also applied to how they provide guidance to the industry.
“We are the industry voice. I think the supply chain for a company is very strategic and maybe even proprietary in many cases. There are many aspects to take into consideration, for example economic policies, economic alliances and so on.
“We are not going to tell them, here is the way you should do the supply chain Rather, the blueprint will have scenarios and recommend technological tools that can be used.”
At the end of day, the idea is to provide redundancy options, so that companies can plan well ahead with suitable alternatives. “These companies will decide how many redundancies they want in their supply chain map. That will become their own proprietary blueprint,” Ajit concluded.
