worldwide semiconductor shortage has global manufacturing firms struggling to adapt their supply chains to keep scarcity, delays, and inflation at a minimum. The growth of cloud computing services, cryptocurrency mining, and the range of "smart" products that require semiconductors (along with a market for them that increased over the course of the pandemic) have all contributed to the chip drought, and the absence of a single cause makes the shortage difficult to rectify. This has led to a call for investment in domestic semiconductor manufacturing in order to lessen the reliance on global supply chains. This case asks students to discuss the shortage and its likely impact on consumers, businesses, and manufacturing.

Case

Learning Outcomes

Students should apply learning in operations and supply chain management, international business, and strategy to discuss the implications of the global chip shortage.

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The Issue

In what some are calling "chipageddon," a global semiconductor shortage is plaguing industries around the world. Chips are in nearly every product in our modern lives, from computers to cash registers, cars to toothbrushes. "If it has a plug or a battery, it is probably full of chips," wrote Glenn O'Donnell, a vice-president at Forrester Research.The scarcity has no singular root cause, but one thing experts do know is that it is not going away anytime soon.

IBM president Jim Whitehurst told the BBC on Friday that the crisis could affect industries for "a few years" before improvement is seenand could fuel inflation in the meantime as a result. Analysts have explained that the now-common embedding of smart features in household products, as well as the growth in cloud computing and cryptocurrency mining, have greatly increased the usage of semiconductors. But a combination of factors have led to supply problems in the USD 500-billion industry.

"The pandemic-induced chip crisis has been exacerbated by events that are normally just bumps in the road for the auto industry, such as a fire in a key chip-making fabrication plant, severe weather in Texas, and a drought in Taiwan," Mark Wakefield, global co-leader of automotive and industrial practice at AlixPartners, said in a press release. "But all these things are now major issues for the industrywhich, in turn, has driven home the need to build supply-chain resiliency for the long term."

Why Is It News?

The shortage has led the Biden Administration to order a 100-day review of U.S. supply chains with the chief executives of 19 industry-leading companies invited to participate. Fifty billion of President Biden's USD 2-trillion infrastructure proposal will be used for the American semiconductor industry.

One insider put it bluntly: "It's hell on earth right now," Frank McKay, chief procurement officer at manufacturing services company Jabil told The New York Times . He explained his company is facing shortages of around 100 components and negotiating the purchasing of them is a "roller-coaster ride every day."

According to the Semiconductor Industry Association, sales for global semiconductors rose 13.2% from January 2020 to January 2021. During COVID-19, demand for products using chips rose as people's usage of electronic devices increased. While natural events may have contributed significantly, as one Forbes writer pointed out, America may need to increase its production of chips.

In all, 88% of the semiconductor chips used by U.S. companies in industries like automotive or defense are made outside of the U.S. Intel CEO Pat Gelsinger said on CNBC's "TechCheck" that he hopes American companies will eventually manufacture a third of the supply of chips, up 12% from today.

Wenzhe Zhao, director of global economics and strategy at Credit Suisse, wrote that the latest shortage has led to inventory hoarding, adding that not much can be done to adjust it besides adjusting order books, production schedules, and prices.

Discussion Questions

• 1.

What impact do you think the chip shortage will have on consumers?

• 2.

How do you think companies should strategize around the shortage in order to lessen its impact?

• 3.

Do you think investment in domestic manufacturing can help prevent future shortages or supply chain constraints?