{"id":9602,"date":"2021-07-08T07:48:43","date_gmt":"2021-07-08T14:48:43","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=9602"},"modified":"2021-07-08T09:00:56","modified_gmt":"2021-07-08T16:00:56","slug":"how-to-prevent-the-next-semiconductor-shortage","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2021\/07\/how-to-prevent-the-next-semiconductor-shortage","title":{"rendered":"How to Prevent the Next Semiconductor Shortage"},"content":{"rendered":"<p>[vc_row][vc_column][vc_single_image image=&#8221;9605&#8243; img_size=&#8221;full&#8221;][vc_column_text]<span style=\"font-weight: 400;\">In our <\/span><a target=\"_blank\" href=\"https:\/\/www.qad.com\/blog\/2021\/06\/how-the-semiconductor-shortage-could-have-been-averted\" rel=\"noopener\"><span style=\"font-weight: 400;\">blog<\/span><\/a><span style=\"font-weight: 400;\"> last month, we discussed how the automotive industry must learn this time from yet another semiconductor shortage by improving management of essential supply chain processes or we will find ourselves in another shortage crisis. One of the reasons cited for the shortage was insufficient forecast information to provide adequate planning for the 22 week lead time, which is typical of semiconductor manufacturing. In order to minimize the impact of similar <\/span><a target=\"_blank\" href=\"https:\/\/www.autonews.com\/weekend-drive-podcast\/daily-drive-podcast-july-7-2021-how-industry-can-break-cycle-disruption?utm_source=antv-weekend-drive&amp;utm_medium=email&amp;utm_campaign=20210707&amp;utm_content=hero-headline\" rel=\"noopener\"><span style=\"font-weight: 400;\">future supply chain disruptions<\/span><\/a><span style=\"font-weight: 400;\">, organizations must ensure they implement and sustain the lessons learned from this disruption. The starting point is recognizing and managing long lead times and critical parts.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Identifying Long Lead Times to Drive Accurate Forecasts<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">OEM planning horizons typically range from 26 to 52 weeks of forecast information provided to Tier 1 suppliers from their automotive OEM customers. Unfortunately, the full horizon of planning information rarely gets communicated to the lowest tiers of the supply chain. Tier 1 and 2 suppliers typically pass on only a portion of the full OEM horizon which can be as little as 8 weeks. Why? We have found that these organizations don\u2019t trust their planning data for several reasons:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Manual processes are often used to analyze changes in customer-provided forecast data<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Poor inventory management and lack of full inventory visibility, including inventory held by next tier suppliers<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Concern of having enough parts on-hand to avoid production disruptions (no one wants to be the function that shuts down production!)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Slow, manual communication of demand requirements to suppliers<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In short, organizations are not leveraging <\/span><a target=\"_blank\" href=\"https:\/\/www.qad.com\/blog\/2021\/05\/5-key-steps-for-a-successful-erp-implementation\" rel=\"noopener\"><span style=\"font-weight: 400;\">ERP<\/span><\/a><span style=\"font-weight: 400;\"> or using electronic communications with their suppliers down the chain. Long-term planning information is critical for the lower tier suppliers to plan and purchase their materials wisely. Without the full planning horizon, suppliers are left guessing what to order and how to best allocate their production resources. When the supply chain guesses incorrectly at any level, parts shortages will inevitably lead to costly premium freight and potential production disruptions up the supply chain.<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Why does it take so long for information to move down the supply chain today?<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">First, the longest lead time in the <\/span><a target=\"_blank\" href=\"https:\/\/www.qad.com\/blog\/2020\/05\/4-supply-chain-areas-to-examine-disruption\" rel=\"noopener\"><span style=\"font-weight: 400;\">supply chain<\/span><\/a><span style=\"font-weight: 400;\"> needs to be determined. Overall supply chain lead time is the aggregate of lead times at each tier. In the case of semiconductors, lead time was reported anywhere from 22 to 26 weeks. Determining these lead times is an essential supply chain process requiring review and updates regularly to adjust lead time information based on current market conditions. We find that most organizations don\u2019t have a clearly defined process within their management systems for lead time determination. In addition, risk-triggered review of lead times is often not performed systematically.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Next, if EDI is in place at each tier of the supply chain, it can take one day per supply tier to communicate demand requirements. This was proven many years ago in an AIAG report entitled the Manufacturing and Assembly Pilot Project. As an example, in the case of a four-tier supply chain, it can take four days in the best case to communicate requirements if EDI is in place at each tier. However, if EDI is not in place and forecast information is sent manually, it typically requires at least one week per tier to communicate requirements down the supply chain. In the case of the semiconductor shortage, if EDI was only in place between the OEM and Tier 1, in this six-tier supply chain, it could take 4\u00bd weeks to communicate demand down to the semiconductor manufacturer. When demand information is not communicated quickly, it will be out-of-date by the time it arrives at the lower supply tiers. Some suppliers may carry excess inventory in anticipation of unknown demand, while others will allocate their limited production capacity to other customers or markets, as is the case in the semiconductor shortage.<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">How can we use lead time as an essential supply chain process to prevent the next disruption?<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Let\u2019s explore in more detail the type of review your organization should perform not only on your processes, but also within your supply chain for critical or long lead time parts. Here are key questions, derived from <\/span><a target=\"_blank\" href=\"https:\/\/www.qad.com\/industries\/automotive\/mmogle\" rel=\"noopener\"><span style=\"font-weight: 400;\">MMOG\/LE<\/span><\/a><span style=\"font-weight: 400;\">, you should be asking your organization related to long lead time and critical parts. More importantly, ensure your answers are documented in management system processes and that employees are trained on these topics to prevent production disruptions due to long lead time and critical parts.<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Transmission frequency and planning horizons are adequate for the total lead time of the part or commodity (MMOG\/LE 6.3.2.4).<\/span>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Does your organization have a process for ensuring communication and alignment of forecast information for critical\/long lead time parts at all levels of the supply chain? For example, if it takes 22 weeks to obtain semiconductors, is the entire supply chain passing down the complete 22 week forecast from the OEM to the relevant levels of the supply chain?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Do you take your organization\u2019s lead times and include them in your operational parameters when calculating your MRP demand?<\/span><\/li>\n<\/ol>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Supply Chain Management (SCM) agreement includes procurement and inventory policies based on customer requirements for long lead time and critical components (MMOG\/LE 6.2.1.7).<\/span>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Do you have a customer inventory policy for long lead time and critical parts?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Has this policy been communicated to your suppliers along with the requirements that they communicate such information to their suppliers (e.g. via terms and conditions)?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Does your automated <\/span><a target=\"_blank\" href=\"https:\/\/www.qad.com\/blog\/2018\/03\/beginners-guide-to-quality-management-systems\" rel=\"noopener\"><span style=\"font-weight: 400;\">quality management system<\/span><\/a><span style=\"font-weight: 400;\"> remind your organization to review customer policies\/requirements periodically and take actions to deploy these requirements as necessary throughout your supply chain?<\/span><\/li>\n<\/ol>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A risk assessment process shall be in place to identify areas within the supply chain process that could affect the ability to meet the customer&#8217;s requirements in the event of a deviation from the normal business process. This could include EDI, transportation, packaging, equipment failure, natural disasters, geopolitical events, etc.<\/span>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Does your organization have a process for continually monitoring and assessing the risk of potential internal and external supply chain disruptions?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Do your organization\u2019s contingency plans specifically address actions to prevent and\/or react to disruptions in long lead time and critical parts?<\/span><\/li>\n<\/ol>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The capability to electronically exchange materials and logistics information (e.g. planning releases, delivery schedules, ASNs) with suppliers, subcontractors, and service providers using web based tools such as EDI, Web EDI and Web Portal (MMOG\/LE 6.3.2.1).<\/span>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Does your organization ensure electronic communication of requirements for long lead time\/critical parts are passed down to the entire supply chain via EDI or the Web?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">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<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Do you confirm the number of weeks of forecast being sent to sub-suppliers\u2019 covers, at a minimum, the longest lead time for the part?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Are you periodically auditing your suppliers to ensure they are passing requirements down the supply chain and verifying each tier is doing the same?<\/span><\/li>\n<\/ol>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A process is in place to assess the capability of supply chain partners utilizing a formal evaluation tool which is leveraged during new product launch and performance review (MMOG\/LE 6.7.1.2).<\/span>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">As a part of your supplier monitoring process, is your organization verifying that critical\/long lead time part suppliers are reviewed during performance reviews to ensure the process for planning and communication of these parts are being followed as required?<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Does your company have an automated quality management system that reminds you it is time to audit\/review suppliers, especially those providing long lead time\/critical parts, track audit results and issue supplier corrective actions, as necessary to a web portal for prompt communication?<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<h2><span style=\"font-weight: 400;\">Next Steps for Manufacturers<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Long lead times and critical parts must be systematically identified and managed by organizations throughout the automotive supply chain to prevent recurrence of the current semiconductor shortage crisis and other significant industry-wide disruptions in the future. The roadmap and tools already exist; these only need to be systematically implemented and maintained by automotive manufacturers throughout the supply chain.<\/span><\/p>\n<p><b>To find out how to overcome systemic deficiencies and avert disaster before the next disruption hits, <\/b><a target=\"_blank\" href=\"https:\/\/go.qad.com\/PromiseofDelivery.html\" rel=\"noopener\"><b>download our latest eBook<\/b><\/a><b>: \u201cDelivering on the Promise of Delivery: Toward a Resilient, Sustainable Supply Chain\u201d.<\/b><\/p>\n<p><i><span style=\"font-weight: 400;\">This article was co-written by Cathy Fisher, founder and president of Quistem, LLC.<\/span><\/i>[\/vc_column_text][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>[vc_row][vc_column][vc_single_image image=&#8221;9605&#8243; img_size=&#8221;full&#8221;][vc_column_text]In our blog last month, we discussed how the automotive industry must learn this time from yet another semiconductor shortage by improving management of essential supply chain processes or we will find ourselves in another shortage crisis. One of the reasons cited for the shortage was insufficient forecast information to provide adequate planning [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":9605,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[182,199],"tags":[7,697,247,112,544,230,1725,1723,180,1724,1726,1677,92,118],"class_list":["post-9602","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-manufacturing-trends","tag-automotive","tag-disruption","tag-edi","tag-erp","tag-forecasting","tag-inventory-management","tag-inventory-visibility","tag-long-lead-times","tag-mmogle","tag-oem-planning","tag-risk-assessment","tag-semiconductor-shortage","tag-supply-chain","tag-supply-chain-management"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How to Prevent the Next 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