Amazon’s results announced last week showed a tripling of profits to £5.4bn and provided a reminder that not every business has been suffering during the pandemic. Offering multiple fulfilment options for lockdown consumers has been a key factor in their success.
But as businesses begin to plan for growth again, a different challenge is beginning to develop for those that rely on building semi-conductors into their products. For the Tech Industry we are seeing constraint in the supply for the very components that power the systems and technology the industry relies on. So how and why have we run out of some microchips?
A number of factors have all impacted supply over the past 6 months. The BBC has been reporting that a drought in Taiwan has reduced production at the Taiwan Semiconductor Co., the second largest provider of microchips behind Intel. A semi-conductor fabrication plant needs lots of clean water. Combined with freezing weather impacting a plant in North America and a fire at a plant in Japan, the BBC are highlighting a global supply chain issue. But the problem is more complex than simply the production capabilities of 3 plants.
The COVID pandemic has reduced demand for products that embed semi-conductors. The most obvious example is the automotive industry. However, the chips being embedded are not the high performance, microprocessors we see in our branded servers. The area that the chip shortage is becoming most damaging to industries, such as automotive, is where the chips perform a variety of management, diagnostics and regulating based functions and by their nature are not expensive and cutting edge.
The reduced need for these during the pandemic accelerated the leading semi-conductor fabrication plants to invest in new technology and equipment, to produce the higher value, higher performance chips. This saw them move to a new 300mm silicon wafer size as opposed to the 200mm wafers in use since the early 2000’s.
Wafer size is important as it determines how many dies (chips) you can manufacture at a time. The greater the wafer surface area the more chips. But because of the huge investment required in the equipment and the supporting systems, manufacturers want to make the latest, most profitable chips to improve efficiency and return on investment.
We have seen recent announcements from Intel that they are spending $20Bn on a new fabrication plant in Arizona. Others are also being encouraged to move production to the US. Meanwhile it is being reported by Forbes (The Global Chip Shortage: The Solution May Have Already Been Manufactured (forbes.com)) that Chinese companies have been buying up second hand fabrication equipment, not covered by US technology export regulations, to manufacture chips using 200mm wafer technology.
It is in this area that the chip shortage is becoming most damaging. Demand from car manufacturers is increasing again. And this is coinciding with a growth in IoT edge devices including fridges, washing machines and other household appliances, that also want to integrate these lower cost chips.
All at a time when the worldwide capacity has been reduced. It would appear those manufacturers that have recognised the trend early (Chinese?) will have a growing, global opportunity over the next 12 months. Manufacturers of products dependent on these chips are all trying to secure supply so they can meet their own production targets. As we see more integration of technology into everyday products, the supporting supply chains will get ever more complex and businesses fate will become dependent on their ability to manage them.
Helping to secure supply chains is an integral part of the project we are engaged in with IBM, Leeds University and UK Fashion and Textiles. And for us to help business do so, it is important to understand the dependencies and risks within the chains. For UK Fashion and Textiles manufacturers and retailers, the dependencies have been increasing recently.
The growing focus on ESG (Environmental, Social and Governance) from both investors and the general public, has resulted in the introduction of new, impactful components within the supply chain. Sustainable sourcing, product authentication and attributable CO2 emissions are now real considerations, adding to supply chain complexity. Add in new Rules of Origin from the EU following Brexit and the requirements for collecting and paying local country VAT on shipments and returns. There are now plenty of new challenges facing the UK fashion industry.
As part of the project we are continuing to reach out to our partner community for innovative solutions that we can showcase to the Industry. Partners who think they may have a solution that would support the project should get in touch, as we continue to run our Ecosystem Webinars. Our aim is to both create new partner to partner relationships and introduce solutions to the UKFT members.
We are also supporting other partner events, addressing related issues around supply chain. These include the IBM and Entopy “Brunch and Learn” series, addressing Inventory Visibility. The event includes a view from within the Industry by Paul Alger, MBE, International Director for UKFT. For more details see the recent IBM post: Post | Feed | LinkedIn
Hopefully we will see you at one of these forthcoming events soon. Maybe helping you organise your own. Or, perhaps, presenting how your solution can help us solve supply chain complexity within the UK Fashion Industry.