08 February 2012

Chips are a supply chain issue

Published:: 19 July 2010
Channel:: The Blog
Byline:: Malory Davies

One electronics industry commentator called it "the ultimate supply chain screw-up". Strong words but when a major international motor manufacturer has to stop the production line, there is, perhaps, some justification.

The story which emerged in the press from Japan last week, relates to Nissan Motor, which announced that it would have to suspend production at some of its Japanese plants because of a shortage of engine control units from supplier Hitachi Automotive Systems.

This was expected to hit production of some 15,000 cars. There has also been speculation that production lines outside Japan could be affected.

To be fair to Hitachi, it appears that the problem related to the shortage in supply of a specific chip from one of its suppliers.

There is a certain irony to the fact that production of something as big as a car could be halted by lack of something as tiny as a microchip.

Of course this is not the first time that there has been a shortage of computer chips, and the recovery in the global economy means that many producers are working at full capacity and are effectively having to ration customers.

At this point, you might expect a lecture on the importance of supply chain agility and resilience.

But chip manufacture requires big expensive plants – for example, one of the world’s largest semiconductor manufacturers, Taiwan Semiconductor Manufacturing Company, has just announced that it is starting work on a new fabrication plant. The building will cover 430,000 square metres – more than four million square feet - and it will cost more than $9 billion.

Perhaps, planning rather than agility holds the key to chipping away at such a supply chain problem.

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