From pandemic-related shutdowns and ongoing labor shortages to supply chain disruption and evolving consumer demands, this “perfect storm” of challenges has led to a prolonged crisis state for many manufacturers. Things are even worse for manufacturers that have been forced to pause production or shut down facilities due to the global semiconductor microchip shortage.
The Microchip Shortage and the Automotive Industry
This shortage has had a significant impact on the automotive sector. According to the Alliance for Auto Innovation, American automotive makers are expected to produce nearly 1.3 million fewer vehicles this year than originally planned due to the shortage. GM CEO Mary Barra has said the shortage could cost GM up to $2 billion in lost revenue this year.
The automotive industry isn’t the only sector snarled by the microchip shortage. The electronics industry is also taking a hit. Apple expects third quarter revenue to be $3 billion to $4 billion less than it could be due to supply chain issues, which are mainly impacting production of its Macs and iPad tablets. And Apple is not alone. Sony recently pushed back the launch of a new camera due to concerns about microchip availability.
The global semiconductor shortage is a complex and very fluid situation. Industry executives estimate the issue may last well into 2022 and beyond. While microchip producers are working to increase output—particularly to support automotive manufacturers—there are not enough existing factories to meet the increased demand. Plus, building these factories takes both time and billions of dollars.
If your business is impacted by the shortage, now is the time to evaluate past mistakes, learn from them, and focus on implementing the necessary changes in your business and operation to ensure you don’t ever end up in this situation again.
Though you cannot control the microchip shortage, there are opportunities to reclaim control over your business in this increasingly dynamic environment. You just need to find the courage to take control and make the hard decisions that will help you manage the chaos.
Reassess Supply Chains
Unless you can establish your own microchip manufacturing in-house, manufacturers must rely on microchip producers that are located offshore. This serves as a stark reminder that no other country in the world is as dependent on imports as the U.S., and that the traditional model of outsourcing to drive down costs brings great risks.
It would be wise to identify and calculate the risk of alternate sourcing strategies that fit your individual needs. Building independence will likely require more capital investment up front, but, in the long run, it will be a valuable investment that mitigates future supply chain risks. To become less dependent on single suppliers or jurisdictions, you could consider dual/multiple sourcing, nearshoring, or reshoring.
Address Workforce Challenges
The manufacturing industry has been experiencing workforce challenges for years, and the microchip shortage has caused even more furloughs and layoffs. Investing in the workers who remain, as well as identifying future talent, will ensure you can maintain the staff required to meet evolving consumer demand. A few ideas to consider:
- Offer training on the latest technologies and automation to fill in skills gaps with existing staff.
- Consider outsourcing strategies such as staff augmentation if you’re looking to hire now.
- Turn your attention to workforce development and recruitment for future needs.
The microchip shortage is one of many pain points right now, and this challenge is not going away anytime soon. But that doesn’t mean you should wait until your business is challenged for its very survival to act!
If you aren’t sure where to start, call Cornerstone today at 1-888-324-4808. Our team of seasoned consultants offers the support you need to ensure you can quickly and proactively manage disruption. In fact, our proprietary methods begin working almost immediately to eliminate chaos and restore order.