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Watch: Building a Resilient Semiconductor Supply Chain | 2021-07-12

Bharat Kapoor, partner in the Strategic Operations Practice of Kearney, talks semiconductor scarcity, and what suppliers and buyers are doing to cope with the crisis.

Automakers are suffering most from the current shortage of semiconductors, with industrial manufacturers not far behind, and consumer products beginning to feel the pain, Kapoor says. The high-tech sector is the least affected at present, due to its long experience in planning for supplies of key components.

The auto industry wasn’t necessarily wrong in slashing orders for semiconductors last year in response to sagging vehicle sales. “Nobody can be blamed because they didn’t know what was going to happen with COVID-19,” Kapoor says. Still, “you have to ask whether there was too much of a knee-jerk reaction.” Rather than take sweeping action across all components and models, he says, manufacturers should have taken a more “surgical” approach, focusing on the differing needs of various categories of computer chips.

Immediate solutions aren’t plentiful or easy. While the shortage lasts, most semiconductor manufacturers will be putting their customers on strict allocations. “They have to find the best way to use what they get from a strategic perspective, not just short-term profitability,” Kapoor says.

Tech products will always need semiconductors, especially as the need to create, move and store data escalates in years to come. Still, there are steps that manufacturers can take to rethink certain product designs. They can aim for a commoditization of basic products, then apply more expensive and specialized features to those items as needed. In the process, they lessen the risk of disrupting production due the interdependence of components.

Expect a glut in semiconductors to emerge in the next several years, Kapoor says, but supplies will eventually be absorbed by relentless demand for chips over the coming decade.

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