How to Mitigate Semiconductor Supply Disruptions
The global semiconductor market is braced for sustained growth, driven by tech advances and strategic demand increases across various industries.
However, despite significant investments to increase fab capacity, lead times can fluctuate quickly amid volatile conditions. Manufacturers must be able to adapt quickly or risk succumbing to potential “perfect storm” of unexpected demand swings, geopolitical challenges and trade restrictions that could wreak havoc on their semiconductor supply chains.
Speaking to Procurement Magazine, Graham Scott, VP of Global Procurement at Jabil, discussed how manufacturers can prepare for rapid semiconductor market changes.
How can manufacturers improve their demand forecasting accuracy for semiconductors over the coming months?
If we think of the semiconductor shortage of 2022 and part of 2023, a big part was manufacturers not having full visibility to demand. We need to provide as much visibility as possible to what we know and believe will happen over coming months, quarters and years. Designing a semiconductor has different product cycles depending on industry – consumer space is shorter than automotive or healthcare. Giving component manufacturers visibility not just for the next few months but for the entire product lifecycle is crucial. When selecting technology and suppliers, ensure you'll have component supply throughout the product lifecycle. It's about being as transparent as possible with component manufacturers about your demand for its entire lifecycle.
What strategies do you recommend for balancing strategic inventory management with cost considerations?
Inventory can be good or bad. Too much of an unneeded part is obviously bad, while not having enough puts you in trouble. Ensuring adequate safety inventory is critical and ties back to understanding both component and product lifecycles. You need to monitor the market and supply situation while keeping suppliers updated on demand needs and lead times to maintain appropriate inventory levels.
From a cost perspective, there's a carrying cost to inventory, but timing is also important. If you stock up when prices are high, you'll have a cost disadvantage. Buying components during market lulls can be advantageous as you anticipate market dynamics changes. These changes could stem from geopolitical escalations or unexpected demand bubbles. Understanding all factors that could affect a component's supply chain becomes critical when determining inventory levels.
How can companies implement supplier diversity without compromising quality or increasing complexity?
There are two ways to approach this with semiconductors. For commodity items where alternatives exist, it's important to approve as many suppliers as possible during design. While there are costs to adding suppliers to an approved vendor list, ensuring multiple sources for commodity parts is crucial. During recent shortages, even standard analog components were affected, and companies with single-sourced parts faced 10x price premiums. So, where possible, multi-source standard components.
For high-IP parts like microcontrollers or ASICs that are harder to multi-source, understand your manufacturer's supply chain. Do they have multiple production nodes that could support operations if disruptions occur? Multi-sourcing for resilience doesn't always mean having multiple suppliers – it might mean your supplier has multiple supply chains. Many semiconductor manufacturers now highlight this as a selling point, showing they have two or three supply chains for particular parts to minimise disruption from events or new tariff mandates.
How are technologies being leveraged to enhance supply chain resilience for semiconductors globally?
AI can significantly improve forecast accuracy. Human behavior becomes a factor in shortage situations - people might ask for 200 units when they only need 100, hoping to get closer to their requirements. AI helps manufacturers spot these situations by analysing historical usage data and market indices to verify whether requested quantities make sense. Several manufacturers are developing systems to identify anomalies that drive unnecessary constraints in the market.
From a procurement perspective, we're using AI to understand demand spikes. We can identify trends in specific part usage by engineers and, using third-party data, spot potential supply risks early.
How important is collaboration within the semiconductors ecosystem?
Collaboration is vital. We build for 400 of the world's largest brands and must ensure their needs are clearly communicated to our supply base. Finding win-win solutions that give our customers the parts and competitiveness they need can only happen through collaboration.
We base our procurement supply chain team on a four Cs behavioral strategy: communication, consistency, credibility and collaboration. Communication means maintaining open dialogue about demand and market shifts. Consistency means avoiding frequent strategy changes. Credibility means doing what we say – if we commit to specific volumes or prices, we follow through. Finally, collaboration focuses on building the best supplier relationships.
We've invested in a SRM team focused on 120 of our 30,000+ suppliers to ensure positive interactions. We drive more business to them, understand their strategy, monitor their investments in technology or capacity, connect with their C-suite and understand how their leadership is compensated. Collaboration through such teams is absolutely vital – procurement can no longer simply demand terms; successful procurement requires genuine partnerships.
How can manufacturers prepare for potential "perfect storm" scenarios in the market?
It's planning for the unplannable, which is challenging, but several approaches can mitigate impact. Understand your supply base thoroughly – their capacity, investments and technology roadmaps. If you're using technology your suppliers are phasing out, you'll likely face issues when they make manufacturing decisions.
Understanding your suppliers' entire supply chain and potential disruption points is crucial. Ensure they have multiple supply chains and multi-location manufacturing capabilities for critical parts. From your side, build strong supplier relationships through dedicated commodity managers focused on understanding what drives your suppliers. Without such partnerships, you'll struggle during constrained markets because suppliers prioritise those who support them.
Maintain visibility on your product demand and communicate this clearly to suppliers so they understand how your product lifecycle aligns with their component lifecycle. Despite best efforts, unpredictable situations will arise. In those cases, you rely on relationships, procurement team knowledge and past experience. Good procurement teams navigated 2022-2023 with less disruption because they had established relationships and processes. Remember that behavior matters; suppliers will prioritise customers who support them when needed.
To read the full article in the magazine, click HERE.
Explore the latest edition of Procurement Magazine and be part of the conversation at our global conference series, Procurement & Supply Chain LIVE.
Discover all our upcoming events and secure your tickets today.
Procurement Magazine is a BizClik brand