{"id":9531,"date":"2021-06-08T09:32:38","date_gmt":"2021-06-08T16:32:38","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=9531"},"modified":"2021-07-07T11:40:23","modified_gmt":"2021-07-07T18:40:23","slug":"how-the-semiconductor-shortage-could-have-been-averted","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2021\/06\/how-the-semiconductor-shortage-could-have-been-averted","title":{"rendered":"How the Semiconductor Shortage Could Have Been Averted"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”9534″ img_size=”full”][vc_column_text]<\/p>\n

Are We Really Learning from Our Mistakes?<\/span><\/h2>\n

The Guardian<\/span><\/i> stated<\/span><\/a>: \u201cThe technology industry faces a growing shortage of semiconductors and other high-tech components following a failure to invest in new manufacturing facilities during the recession, experts have warned.\u201d Does this sound like a quote you have read over and over again in 2021? This quote is actually from an article published in July 2011.<\/span><\/p>\n

How could this problem of a semiconductor shortage have happened again? As an industry that embraces problem solving<\/span> as a daily practice, why didn\u2019t we<\/span> implement <\/span>corrective actions<\/span><\/a> and apply our lessons learned? In looking at this crisis, we actually did learn and even added requirements to industry supply chain standards; however, we were not disciplined enough on our follow through and neglected to implement the appropriate corrective actions.<\/span><\/p>\n

The good news is, according to an April 2021 <\/span>survey<\/span><\/a> conducted by <\/span>Automotive News Research & Data Center<\/span><\/i>, 42% of automakers and parts suppliers say they will change the way they manage supply chain risk due to the current global shortage of microchips. The not so good news from the survey is that only 22% of companies are considering additional investments in technologies that would help create early warning signs of potential supply chain risks.<\/span><\/p>\n

The origin of this most recent semiconductor shortage began in early 2020 as automotive assembly plants and the supply chain shut down due to COVID-19. While the automotive industry was shutting down, other industry sectors, such as consumer electronics were ramping up due to the stay-at-home orders. The chip manufacturers began shifting their manufacturing capacity to these other industry sectors who were now begging for supply. Very similar to the crisis in 2008-2009 and much to the surprise of industry analysts, automotive demand came back much quicker than expected. As a result, automotive OEMs were not able to ramp-up demand requirements fast enough back up the supply chain. The resulting impact of the current<\/span> semiconductor chip shortage is expected to cost the global automotive industry $110 billion in lost revenue in 2021, according to consulting firm <\/span>AlixPartners<\/span><\/a>.<\/span><\/p>\n

How can we learn our lessons this time and permanently prevent such large-scale supply chain disruptions going forward? Here are three areas to consider:<\/span><\/p>\n

Ensure your organization\u2019s essential supply chain processes are defined, documented and implemented<\/span><\/h3>\n

The origin of the semiconductor shortage can be traced back to automotive suppliers not having effective processes in managing the following five essential supply chain activities:<\/span><\/p>\n

    \n
  1. Fluctuating customer demand or inadequate forecasting\u00a0<\/span><\/li>\n
  2. Insufficient deployment of demand down through the supply chain<\/span><\/li>\n
  3. Inadequate lead times for long lead-time critical parts<\/span><\/li>\n
  4. Lack of or ineffective<\/span> periodic review of supplier assessments against customer requirements\/policies<\/span><\/li>\n
  5. Insufficient inventory visibility throughout the supply chain<\/span><\/li>\n<\/ol>\n

    But, the industry has been here before and fixed it!<\/span><\/p>\n

    The AIAG\/Odette Materials Management Operations Guideline\/Logistic Evaluation (<\/span>MMOG\/LE<\/span><\/a>) provides organizations with a supply chain management system. The first version of the MMOG\/LE assessment was introduced in 2004 and is in its fifth revision today. The following is the content contained in the six chapters of MMOG\/LE (see Figure 1).<\/span>[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_single_image image=”9540″ img_size=”full” add_caption=”yes”][vc_column_text]In the most recent version of MMOG\/LE, criterion 6.2.1.7 (see Figure 2) was added in response to shortages and disruptions that occurred in 2008-2009. In addition to 6.2.1.7, Chapter 6 Supplier Interface recommends the following additional requirements be implemented and documented in a process:<\/span>[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_single_image image=”9538″ img_size=”full” add_caption=”yes”][vc_column_text]Looking at these MMOG\/LE recommendations, as an industry we surely should have known that electronics can have a lead time of 22 weeks or more. Tier 1 suppliers should have been passing on 22 weeks of supply requirements forecast to Tier 2 suppliers.<\/span><\/p>\n

    Periodically assess your organization\u2019s essential supply chain processes against best practices<\/span><\/h3>\n

    Who has been checking<\/span> the effectiveness of these essential supply chain processes? According to <\/span>Deloitte<\/span><\/a>, only 18% of chief procurement officers say they are formally tracking risk in their direct (Tier 1) supplier base and only 15% have visibility beyond that. In addition, according to the <\/span>Automotive News<\/span><\/i> survey, most automakers and suppliers reported similar perspectives related to supply chain visibility. The survey found less than half describe the view of their sub-tier supply base as above average; moreover, 4 out of 10 say they have little to no visibility into the third layer of their supply base.<\/span><\/p>\n

    OEMs and Tier 1 organizations should have been conducting annual\/periodic assessments to validate sub supplier adherence to these essential supply chain process<\/span> requirements. These actions alone may not have totally averted the semiconductor shortage but it sure would have helped the automotive industry to recover much faster.<\/span><\/p>\n

    MMOG\/LE provides a comprehensive supply chain maturity model for organizations to self-assess their supply chain processes based on industry best practices. However, only a handful of automotive OEMs and Tier 1 suppliers routinely perform supply chain assessments using the MMOG\/LE criteria. Many Tier 1 suppliers who are not using MMOG\/LE as a tool with Tier 2 often have a far less robust supply chain review process than MMOG\/LE, which makes matters even worse.<\/span><\/p>\n

    Automotive manufacturers have consistently adopted annual internal auditing of their <\/span>Quality Management Systems<\/span><\/a> to ensure ongoing effectiveness against ISO 9001\/IATF 16949 and automotive customer-specific requirements. Assessment of these essential supply chain processes should also be incorporated into automotive suppliers\u2019 existing internal audit programs to ensure effective implementation and performance of these essential supply chain processes based on MMOG\/LE criteria. Tier 1 suppliers who lack robust supply chain audits should consider adopting MMOG\/LE. AIAG and Odette offer training globally for organizations looking for a robust assessment of lower tier suppliers.<\/span><\/p>\n

    Leverage core ERP technology to provide ongoing transparency of supply chain status and prediction of potential future disruptions<\/span><\/h3>\n

    If we look at what MMOG\/LE requires, when organizations leverage ERP as a best practice, disruptions<\/span> are minimized through automation of essential supply chain processes. Your organization should assess the following:<\/span><\/p>\n

      \n
    1. Do you take your organization\u2019s lead times and leverage them in ERP when calculating your demand?\u00a0<\/span><\/li>\n
    2. Does your <\/span>quality management system<\/span><\/a> remind your organization to review customer policies\/requirements annually and take actions to deploy these requirements as necessary throughout your supply chain?<\/span><\/li>\n
    3. Is your organization leveraging your ERP\u2019s EDI\/Web EDI functionality with 100% of your suppliers to quickly communicate demand down to your suppliers?<\/span><\/li>\n
    4. Does your company have an automated quality management system that reminds you it is time to audit\/review suppliers, track audit results and issue supplier corrective actions, as necessary directly, to a web portal for prompt communication?<\/span><\/li>\n<\/ol>\n

      If you answered \u2018no\u2019 to any of the above questions, then your <\/span>response time<\/span><\/a> to any disruption is going to be significantly delayed or even go undetected.<\/span><\/p>\n

      Preventing Future Auto Supply Chain Disruptions<\/span><\/h2>\n

      With the automotive industry accelerating towards the adoption of new technologies, including electrification and autonomous mobility, we will continue to find ourselves competing with other industry sectors for supply of key technology components. We must learn from this current <\/span>supply chain disruption<\/span><\/a> by improving visibility and management of<\/span> essential supply chain processes or we will certainly find ourselves in this kind of crisis again and most likely much sooner than a decade from now.<\/span><\/p>\n

      For a complete roadmap on how to avoid supplier disruptions, download our latest eBook<\/a>: \u201c<\/b>Delivering on the Promise of Delivery: Preventing Future Auto Supply Chain Disruptions<\/b>\u201d.<\/b><\/p>\n

      This article was co-written by Cathy Fisher, founder and president of Quistem, LLC.<\/i>[\/vc_column_text][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":"

      [vc_row][vc_column][vc_single_image image=”9534″ img_size=”full”][vc_column_text] Are We Really Learning from Our Mistakes? The Guardian stated: \u201cThe technology industry faces a growing shortage of semiconductors and other high-tech components following a failure to invest in new manufacturing facilities during the recession, experts have warned.\u201d Does this sound like a quote you have read over and over again in […]<\/p>\n","protected":false},"author":22,"featured_media":9534,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[182,199],"tags":[782,7,581,46,1469,1169,1678,1679,180,1680,1681,1677,1676,92,1598,124],"class_list":["post-9531","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-manufacturing-trends","tag-aiag","tag-automotive","tag-automotive-erp","tag-automotive-manufacturing","tag-corrective-actions","tag-covid-19","tag-high-tech-components","tag-industry-supply-chain-standards","tag-mmogle","tag-odette","tag-quality-management-systems","tag-semiconductor-shortage","tag-semiconductors","tag-supply-chain","tag-supply-chain-disruption","tag-supply-chain-risk"],"yoast_head":"\nHow the Semiconductor Shortage Could Have Been Averted | QAD Blog<\/title>\n<meta name=\"description\" content=\"Avoid future automotive supplier disruptions by learning 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