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The global semiconductor shortage that was already in effect pre-pandemic and then exacerbated during COVID has subsided for at least some industries. Others continue to struggle with the chip shortage—most notably, the automotive sector. It’s no wonder, really, seeing that the typical new car needs somewhere between 1,400 and 1,500 chips to operate.
More complex vehicles are built with as many as 3,000 chips, all of which are needed to run modern electronic vehicle systems, smart safety features, driver assistance capabilities and other functions. Procuring that many semiconductors for every single vehicle manufactured has become increasingly difficult for manufacturers in recent years.
In February, for example, Ford attributed a 100,000 deficit in vehicle production volume primarily to its inability to secure enough chips during the final quarter of 2022, CBT News reports. In fact, by the end of 2023 it says that a total of 18 million automobiles will no longer be produced as a result of the chip shortage.
"We're going to see in 2023, there is still going to be volatility around chips," Ford CFO John Lawler said, as reported by Reuters. "I know there’s been a lot of discussion about 'Well, the chip supply issue is over,' but on the larger, older nodes that are primarily the chips we use in the auto industry there are still capacity constraints."
Other automakers are also feeling the pinch. General Motors’ CEO discussed short-term disruptions as recently as October 2022 and Volkswagen announced in January that its 2023 production schedule was suffering due to ongoing chip shortages. “We’re working to get access to as much as we can through the spot market and the broker market,” Lawler added. “It’s hand-to-hand combat.”
Getting Things Back in Balance
According to TechRepublic, chips as a whole are no longer in the “shortage zone,” but there are still inventory imbalances due to “abundance of some chips and an unavailability of others.” For example, it expects significant oversupply in the memory market in 2023 due to weak end-equipment demand. TechRepublic also says that memory prices are dropping, while “communications and commodity analog/power components have seen significant increases in inventory and reduced bookings as subcontractors deplete their stock to align with lower demand.”
“The supply of semiconductors has been, and remains, a significant challenge for industries around the world,” McKinsey & Co., states in “Chip hunting: The semiconductor procurement solution when other options fail.” “Manufacturers in sectors such as automotive, consumer goods and technology have been hit with shortages that held back production and put profits at risk.”
Putting AI to Work
To address their current chip shortage challenges, procurement professionals in the automotive industry and other impacted sectors are leveraging advanced technologies like machine learning and artificial intelligence (AI). For example, AI can help manufacturers more rapidly identify new sources of supply and then onboard those new suppliers faster. Shaving time from these two processes can help already-overburdened procurement teams focus on more important, strategic projects.
“By moving away from manual approaches, teams can scan hundreds of proprietary, public-source and commercial databases simultaneously—helping them to obtain the right chips in a fraction of the time formerly required,” McKinsey points out.
Artificial intelligence can also help procurement solve its short-term chip supply issues. For example, the technology helps buyers cast wider nets for new suppliers and stock. “Companies that have used AI report unlocking multiple new sources, even for customized parts,” McKinsey adds. “Sometimes there is a price to pay—in budgets, testing and even quality—but the upside in capacity more than offsets the costs.”
