Page 33 - Commercial Vehicle Engineer - September 2021
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and logistics industries, as the need for semiconductors crashed.
Luckily for chip manufacturers, the increase in demand for IT products more than absorbed the excess. And with a requirement for higher product volumes, the tech industry became more attractive
to chip manufacturers. As such, once vehicle sales picked up and manufacturers tried to reorder to their old levels, the
auto industry found that the supply of microchips had been reallocated and manufacturers couldn’t increase production levels sufficiently to satisfy both markets.
To make matters worse, some astute auto manufacturers read the marketplace and realising a shortage was on the horizon, started to increase their stocks.
Semiconductor chips are used liberally in vehicles such as tractors, with anywhere between 15-35 chips required for each. It’s easy to see where the lack of such a small component can have colossal impact on new vehicle manufacturing.
To manage the shortage, manufacturers are revisiting their product portfolios
to assess priority lines and models and focusing production on them. Model specifications are also being revised and features dependent on semiconductors, such as reversing systems and satnavs, often aren’t being included. In desperation, some companies agreed to take a
higher specification chip even though
it wouldn’t be fully utilised. A few car manufacturers were forced into even more drastic measures; Ford, Volkswagen and Jaguar Land Rover reduced their levels
of production, laid off staff and closed production lines.
Governments across the globe are quickly coming to the realisation that having
their own semiconductor manufacturing industry is a good step to support and protect their industry. The required capital investment is huge but already some countries are striking up agreements between government and private equity companies to get manufacturing sites established. For instance, in the US, the Biden administration called on Congress
to invest $50 billion in semiconductor manufacturing and research .
Peter Millichap
“Governments across the globe are quickly coming to the realisation that having their own semiconductor manufacturing industry is a good step to support and protect their industry”
The issue regarding supply may be around for some time, so there are a couple of tactics that manufacturers should consider to weather the storm. Search out new chip suppliers where possible but be mindful that some chips contain the protected intellectual property of the manufacturer and
may require lengthy licensing if sent
to another manufacturer. Similarly, if the supplier is new to manufacturing
a specific chip format, there may be a delay while the factory is re-tooled and equipment and raw materials purchased. If the manufacturer can change supplier to one that is more local, keeping the business within the immediate locality will help that community to thrive
and develop.
If staying with the same chip supplier,
manufacturers should aim to foster stronger trading relationships, which could improve the security of future orders. This could include paying a premium for low volume orders; investing in the supplier’s operations in some way; or making longer-term commitments
regarding volume, i.e., placing orders
for 2022 to enable the supplier to buy in raw materials or make investments with confidence. Smaller companies could form simple associations and bundle together their smaller volume orders into more significant ones.
As the world opens back up to life that mirrors pre-COVID-19 times, it’s clear that we will still face disruption and the transport and logistics industry may feel the effects for a considerable amount of time. However, fleet operators can focus on utilising telematics in the meantime to gain a competitive advantage and thrive.
Peter Milichap is UK marketing director at Teletrac Navman UK.
 1According to the Semiconductor Applications Forecaster (SAF)
from International Data Corporation (IDC). IDC forecasts the semiconductor market will reach $522 billion in 2021, a 12.5% year- over-year growth rate
2eMarketer, December 2020

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