5 Semiconductor Procurement Tips

The worst of the pandemic-era global chip shortage may be fading into the rear-view mirror, but certain industry sectors still face difficulties in finding the components they need to build their products. Hit hardest by the shortage, the automotive sector continues to struggle with a dearth of chips. The consumer electronics, industrial and medical sectors (among others) also continue to face chip shortages.

“Some chip shortages could remain through 2023 and into 2024, though supply of semiconductors and raw materials will generally improve in the auto sector,” J.P. Morgan reports. The auto sector can expect a strong year in 2023, with global car production up 3%, it adds, noting that at the height of the chip shortage, global auto production slumped 26% during the first nine months of 2021.

Chip supply began to improve in 2022 and that momentum continued in 2023.

“Capacity was initially freed up due to weakness in some end markets, particularly PCs, smartphones and consumer electronics, where sales began falling in March 2022,” J.P. Morgan reports. “Foundries in Taiwan reallocated some of this capacity to the automobile and industrial end markets, which lost out to other sectors during the COVID-19 pandemic.”

5 Tips for Chip Buyers

As they plan out the rest of 2023 and begin to look to 2024, buyers can use these five tips to ensure a steady, predictable supply of chips:

1. Don’t wait until the last minute to place your orders. With the semiconductor shortage still impacting certain markets and industries, smart buyers are working out further ahead to ensure a reliable source of supply. Doing so can also work in your favor when it comes to negotiating for better pricing.
2. Work only with authorized suppliers. These suppliers have been approved by the chip manufacturers themselves and, as such, are considered to be safe and secure sources of chips. Authorized suppliers are also required to meet the OEMs’ quality standards and, in many cases, will provide technical support, training and warranty support.
3. Consider alternative materials. Can't find the semiconductor chips you need? Consider using alternative materials. This may not be ideal – and it may require reengineering on your company’s part – but it may also provide a viable route to keeping your organization’s production lines running.
4. Build strong relationships with your suppliers. In today's uncertain business environment, building strong relationships with suppliers is more important than ever. When you have a strong relationship with your suppliers, you are more likely to have open and honest communication, reduced costs, high-quality products or services, and improved risk management.
5. Use technology to cast a wider net. As they continue to wade through supply issues, McKinsey & Co., says companies should consider a more “systematic approach to scanning for supply in the open market.” The company says artificial intelligence (AI) is one advanced technology that can help companies cast wider nets for new suppliers and stock. “Companies that have used AI report unlocking multiple new sources, even for customized parts,” the company says. “Sometimes there is a price to pay – in budgets, testing and even quality – but the upside in capacity more than offsets the costs.”