Manufacturers are building products based on available materials as they prepare for shortages to last until late 2022 and beyond
The global shortage of semiconductor chips is affecting technology manufacturing industry globally as buffer stocks run low. And with no signs of consumer demand slowing down, companies are finding long term alternatives to manage the shortage of raw materials.
Semiconductors are used in the manufacturing of green printed circuit board components that are used in thousands of products from computers, smartphones, to cars.
The shortage has been the result of factory closures in China due to Covid and surging consumer demand for electronics as people work and study from home.
GPC Electronics is one of the largest contract manufacturers in Australasia that makes wireless equipment, phones and medical products. It’s also a second tier supplier for car manufacturer General Motors.
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The chip shortage has hit even giants like General Motors who recently announced temporary suspension on the production of utility vehicles.
GPC Electronics NZ general manager Robert Wallis says with electronics making up more than 80 percent of a car’s value, semiconductor chips have become an essential part of manufacturing.
Cars were being delivered incomplete, with parts that require the chips like satellite navigation missing, to be fitted in later by the dealer, he says. “The situation has become quite critical.”
Factories in China are also charging premiums to get on a waitlist for materials, Wallis says. There’s no guarantee you’ll get the materials. It’s just a premium to join the queue.
Wallis says orders that would typically take 12 weeks to complete are taking 18 months. “In 2019, this would have been completely unheard of.”
That’s because companies couldn’t predict what the market would want three months down the line, let alone beyond a year.
Wallis says bare circuit boards had four weeks lead times pre delays, now lead times have stretched to 16 weeks.
“The situation has become quite critical.”
– Robert Wallis, GPC Electronics
Parts that cost less than $1 a piece now cost $33 each, he says.
GPC has seen a further 20 percent increase in demand from its customers on what was already a busy period last year.
Wallis says over the past few years consumers have come to expect cheap prices for electronics and mass production of materials and labour.
The main semiconductor production hubs are in China, South Korea and Taiwan all hit hard by Covid. A fire at a Chinese semiconductor earlier this year further stalled production.
The world has relied for a longtime on these countries’ multi-billion dollar facilities and is now struggling to build these chip production factories in other countries. But the United States, which manufactures chips, is ramping up production.
US President Jo Biden also signed an executive order earlier this year with the aim of increasing domestic production of critical raw materials.
Wallis says in New Zealand and Australia it is hard to get the government to procure because we make a small part of the world’s manufacturing market.
Another problem is the shortages are spreading to raw materials across the board.
“The commodities are so vast. It’s not like sourcing one vaccine. Even Australia and New Zealand clubbed together as a region we represent 2 percent of the world’s market.”
The Ministry of Business, Innovation and Employment says local manufacturers are responsible for monitoring their own supply chains.
As a result, Wallis says companies are preparing to manage these delays that are expected to last until at least 2022.
“Of course some products will need semiconductors, but we’re telling customers to innovate their designs by taking into consideration what commodities are available.”
GPC has cushioned the blow from facing delays by having 15 procurement offices close at the heart of production in China. But Wallis says small Kiwi manufacturers won’t be as lucky.
“We are finding materials. There are premiums that need to be paid, but we’re doing well.
“It becomes much harder for small manufacturers because the components supply is complex. I don’t think NZ is very well represented in terms of distributors.”