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January 17, 2023

Navigating Today’s Turbulent Supply Chain

Navigating Today’s Turbulent Supply Chain

With component production finite and insufficient to meet market demand, NewPower encourages buyers to plan for the ‘new normal’ and craft custom inventory management methods.

The semiconductor industry has been pushing its production limits and will ship more product this year than at any point in history. But still, lead times remain at all-time highs, with the current lead time of a semiconductor being 27 weeks. While industry investments to build new facilities promise to provide more production in the future, those dividends are expected in 2024. In 2023, demand is expected to grow, but unfortunately, current production is finite and insufficient to meet the market’s needs.

A relevant example is the auto industry which consumes roughly 10% of the semiconductor market. The semiconductor shortage has created severe financial problems for most automakers as semiconductors are used for power management, safety features, sensing, displays, and vehicle control. Moreover, the industry’s reliance on semiconductors is surging as manufacturers universally shift towards electric vehicles, which use roughly 300% more semiconductors than the gas-powered alternative.

As the global shortage of chips developed, Toyota was the only automaker not bothered significantly by the chip shortage early in the pandemic because of the lessons learned from the issues it faced with suppliers after the devastating earthquake and tsunami in Tohoku in 2011. Unfortunately, despite the strong inventory management policies, Toyota was hit by the semiconductor shortage when the Renesas Electronics plant in Japan had a fire and halted production.

Historically, semiconductor supply chains have been designed to be extra efficient using lean manufacturing but carry the risk of being defenseless against sudden changes in the market. Those changes come in different shapes and sizes; take geopolitics as an example. The Russia/Ukraine conflict has left many manufacturers without raw materials to produce chips. Ukraine supplies an estimated 50% of neon worldwide, and Russia is a significant producer of palladium, a rare metal used in semiconductors. The war has also caused major logistics issues and increased transportation costs. In addition, US/China tensions continue to have implications on the global supply chain, leading to the surge of government controls on sales of chips to China, the world’s largest semiconductor market.

So how can buyers prepare for this type of volatility? Supply chain professionals must plan for the ‘new normal’ and craft inventory management methods custom to their organizations. They need to partner with like-minded organizations that can help them navigate turbulent times to their benefit.

NewPower is that partner. With 13 offices globally, NewPower is the world’s fastest growing Independent Distributor positioned to help craft and execute inventory management solutions. Our $325M credit facility allows us to transact in real-time on deals both large and small. Our proprietary trading platform, EMPOWER®, ties everything together by providing our staff with a real-time global view of supply. Call NewPower today to see what we can do for you.

 

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