The COVID-19 pandemic broke many supply chains, leading to shortages across industries. Amid a major shift in consumer behavior, factory shutdowns, and stay-at-home orders, it was difficult to quickly shift operations, supplies, packaging, and transportation to serve business and consumer markets. Labor and supply shortages continue to stunt supply chains to this day.
One significant shortage with far-reaching side effects is the global semiconductor chip shortage. These computer chips are a component of nearly every device we use. They power smartphones, computers, refrigerators, factory equipment, cars, and more.
What caused the chip shortage?
The chip shortage started when consumers ordered more personal electronic devices than normal during the early months of the COVID-19 pandemic. Laptops, smartphones, tablets, and other personal electronics were in high demand as professionals shifted to working from home, students started attending school online, and individuals hunkered down during lockdowns.
People purchased electronics to stay connected, upgraded their computers, purchased smart speakers, and played more video games. To put it into perspective, 2019 chip sales totaled $412 billion while 2020 chip sales totaled $439 billion, according to the Semiconductor Industry Association.
What industries have been affected?
The chip shortage impacts many industries. Automakers have been especially hard hit. GM, Ford, Honda, and Fiat Chrysler all warned investors of slowed vehicle production. Some companies have even halted the production of certain vehicles. GM said it could lose up to $2 billion as a result. The rental car industry has also suffered. It has also affected the gaming industry, making it difficult for players to purchase the PlayStation 5 and Xbox Series X|S gaming consoles.
Now, the shortage has hit the smartphone industry. Google and Jio, the largest mobile network in India, pushed back plans to launch a low-cost 4G smartphone in India. Though the two companies did not attribute the delay directly to the chip shortage, they did suggest that pushing the launch would “help mitigate the current industry-wide, global semiconductor shortages.”
Google’s not the only smartphone maker feeling the effects. Apple’s shipments of the iPhone 12 were also delayed by several weeks as the chip shortage hit iPhone, iPad Pro, and MacBook production. Apple and Samsung were buffered from the shortage for a time because they were able to stockpile critical components.
What is contingency planning?
As defined in Chapter 8: Managing Operations and Supply Chains, supply chain management refers to connecting and integrating all parties or members of the distribution system to satisfy customers. As many people learned during the pandemic, contingency planning should be a top priority in supply chain management.
Contingency planning involves assessing risks, planning for eventualities, and providing ready tools and plans for responding to breaks in the supply chain. The crippled supply chain has impacted endless industries, making procurement a major area for improvement. Identifying areas of the supply chain that would be at risk during a disruption prior to a crisis could help organizations quickly secure additional inventory from existing suppliers or switch to new suppliers to secure the materials necessary to avoid stockouts.
Companies that invested in mapping their supply chains prior to the crisis to identify which suppliers and parts had the potential to be at risk during a potential disruption were better prepared. For example, Samsung quickly assembled a task force to secure supplies quickly, leveraging experience from the SARS and MERS epidemics. Though supply network mapping is time- and labor-intensive, if companies do not invest in supply chain mapping, they will be at risk when crisis strikes again.
Apple, Amazon, Facebook, and Tesla are just a few of the companies looking to bring in certain parts of chip development in-house, partially due to the shortage. The global semiconductor chip shortage is likely to continue through the end of 2022.
In the Classroom
This article can be used to discuss supply chain management and contingency planning (Chapter 8: Managing Operations and Supply Chains).
- Why is the shortage of semiconductor chips significant?
- Describe some of the main factors contributing to the semiconductor chip shortage.
- What changes could be made in the supply chain to prevent a shortage like this from happening again?
This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell and Linda Ferrell.
CNBC, “How the Global Computer Chip Shortage Happened,” YouTube, February 26, 2021, https://www.youtube.com/watch?v=sfAyXjRFUJk
Mariella Moon, "Google and Jio’s Low-Cost ‘Made for India’ Phone Delayed Due To Chip Shortage," Engadget, September 10, 2021, https://www.engadget.com/google-jio-jionext-phone-delayed-chip-shortage-092501299.html
Ryan Browne, "The Global Chip Shortage Is Starting To Hit the Smartphone Industry," CNBC, July 29, 2021, https://www.cnbc.com/2021/07/29/the-global-chip-shortage-is-starting-to-hit-the-smartphone-industry.html