Commentary From Crisis Management Expert Edward Segal, Author of the Award-Winning Crisis Ahead: 101 Ways To Prepare for and Bounce Back from Disasters, Scandals, and Other Emergencies (Nicholas Brealey)

The semiconductor chip crisis that hit companies around the world shows no signs of ending any time soon and will continue to impact the supply chains for many industries. Indeed, some organizations have yet to fully recover from the impact of the blockage of the Suez Canal last March on their ability to send and receive essential materials, parts and supplies.

Surprised By Pandemic

Mike Noonen, CEO of Mixcomm, observed that, "... semiconductor supply chains were kind of surprised by the pandemic. They did not expect to see the pandemic driving up demands for laptops and tablets, etc. I do think that is more of an aberration, not necessarily a traditional semiconductor cycle.

"We are now in a world where every industry is either enabled by, or dependent upon semiconductors. There isn't one industry that is not influenced positively by semiconductors. In normal times this will smooth out the booms and the bust. There is still going to be a semiconductor cycle except for rare events, such as the pandemic. Hopefully, there will be a more controlled boom and bust," he said.

According to Noonen, "Pandemic plus too heavy reliance on lean inventory, came together to create the havoc that we face today in this shortage."

Dependent On Semiconductors

The  Wall Street Journal recently reported that Volkswagen, "warned that the global shortage of semiconductors affecting car production would worsen over the next six months."

"The semiconductor shortage has throttled the auto industry throughout this year," according to Dr. Thomas Goldsby, the Haslam Chair of Logistics at the University of Tennessee's Master's of Science in Supply Chain Management online program.  

He told me that, "Automobiles are more dependent on semiconductors that direct and manage engine performance, safety features, navigation, and entertainment systems. A modern car can have up anywhere from 1,500 to 3,000 chips."

Goldsby predicted that, "The number of semiconductor chips required for automobiles will continue to increase with cars becoming 'smarter' and employing propulsion systems."

Buyers Seeking Alternatives

Grant Feek is the CEO of Tred, a used car marketplace. He noted that, "Because of the semiconductor chip shortage, new car buyers are turning to alternatives, like used cars, and paying high[er] prices for them. [Demand] for used cars was high in the first place due to government stimulus payments, and many Americans [were] getting back into road trip mode. 

"We've seen used car values shoot up considerably, more than 5% in the past month and 50% in the past year! Even if you're able to pay a large sum of money, certain new cars just aren't accessible right now, like the Ford Bronco," he said.

Feek predicted that, "These shortages aren't going anywhere for the foreseeable future, which is why used car online marketplaces like Tred are experiencing a substantial amount of growth..."

Advice For Business Leaders

Make Better Decisions

Mark Dohnalek, president and CEO of Pivot International, said, "The new way of thinking during this chip shortage has become: if you don't have it in stock, you don't have it. This chip shortage has taught us that the only way to succeed is to buy way out in front of demand in order to secure what is needed from the supply chain. 

"Without this security, companies will have a higher risk level of being shut down for periods of time. Right now, during the crisis, companies need to buy well in advance, more than they previously operated at. When we are past this shortage, companies will modify their previous approach of very lean inventory management with higher stock to mitigate from this happening again," he advised.

Prepare For More Disruptions

Alex Hersham, CEO of Zencaro, last week told the Hellenic Shipping News, "the Ever Given's blockage of the Suez Canal shone a spotlight on global supply chains in a way not previously imaginable. 

"I'd love to paint a more positive picture for the future, but given the amount of strain and the lack of buffer in global supply chains, it's almost inevitable that another disruption event will occur in the coming months. That could be anything from another Covid outbreak at a port to an orchestrated cyber attack," he said,

"Businesses need to make sure their supply chains are agile and ready to respond, and that they make the investment before it's too late," Hersham warned.

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