what’s driving the chip shortage?
Several factors contributed to the semiconductor shortage that’s currently affecting a wide range of industries. One early assumption on the part of some manufacturers was that the pandemic would suppress the demand for chips. These demand forecasts, which the chip manufacturers used for production planning, failed to foresee how consumers stuck at home would increase spending on consumer electronics, computers, games — products full of chips. Bad forecasting, coupled with droughts that affected chip production in Taiwan and fires that crippled two chip production plants in Japan, have further limited worldwide production capacity, resulting in a deep and long-standing imbalance between supply and demand.
In September of last year, the U.S. Commerce Department requested information from chip makers and consumers about inventories, production capacity and backlogs. One of their findings was that the median inventory among chip buyers had declined from 40 days before the pandemic to fewer than five days. Lead times, the delay between when the chip is ordered and when it is delivered, increased by three days from January to February 2022 to hit 26.2 weeks.
The chip shortage has forced certain sectors, such as automobile manufacturers, to slow or halt production, and others to attempt to find ways to revamp or redesign products to use older chips that might be in greater supply.
how is product design affected by the shortage?
The global chip shortage shows no signs of abating anytime soon. Even with existing plants operating at near capacity and increased investments in expanding chip manufacturing capacity, it is expected that the shortage will persist well into this year, with some chip industry executives warning that chip users could continue to experience shortages into next year. Companies have had to modify their engineering designs to continue production.
There are two approaches engineers have employed to better withstand the effects of the chip shortage — designing products for resilience and designing products for availability. Designing for resilience is precautionary, that is, it tries to anticipate and design for supply disruptions. This approach selects product components that maximize production options. It might include the use of multiple component vendors and promote designs that reduce the total number of parts and emphasize the interchangeability of parts. It tries to build in as much flexibility as feasible, so, if supply problems arise, production options are available.
Designing for availability is designing or redesigning a product to incorporate existing materials and components that are readily available and are anticipated to remain that way. To be successful at this type of design requires some insight into suppliers’ inventories and for engineering to have options for redesigns given current component inventory levels. Engineers analyze the current bill of materials to identify replacement options and identify parts that would be suitable with only minor product redesigns.
A recent survey of 500-plus global engineers conducted by global electronics distributor Avnet details the impact of the chip shortages on design. Part of what they found includes that 75 percent of the engineers experienced delayed production schedules for as long as six months, and that 64 percent indicated that their companies are designing more based on the availability of components rather than on their component preferences. The chart below shows how engineers responded when their desired components were unavailable.
how engineers adapted when preferred parts weren't available
Percentage of respondents:
The simplest response when the preferred part is unavailable is to find a pin-to-pin replacement. The engineer attempts to find a device of the same dimensions with pins that offer the same functionality as the original (or can be adapted to do so). When a replacement can’t be found, engineers often redesign boards or develop some type of adapter.
real-world examples of engineering design flexibility
A recent article in the Harvard Business Review describes how two companies have successfully adapted to overcome chip shortages. The first example recounts how the automobile manufacturer Stellantis, unable to produce digital speedometers for one of its Peugeot models, used analog versions to continue car production. The other example illustrates how Tesla applied both resilience and availability design approaches to buffer the effects of the chip shortage. Tesla’s strategy was to develop customized software that used standard semiconductor hardware. When the microcontroller units (MCUs) the company usually used in its electric vehicles became scarce, the firm applied its in-house software development capabilities to create new MCUs and to develop firmware for new chips provided by new suppliers. Tesla’s in-house design, software development and production capabilities allowed them to modify parts in ways that most automakers cannot. In 2021, in the face of a chip shortage, Tesla increased its deliveries by 87 percent — a record high. Other automakers, including Mercedes, are moving to emulate some of Tesla’s engineering practices.
finding enough engineering talent can be challenging
Sometimes, organizations struggle to find the engineering expertise to solve the array of technological and design problems they face. A review of the U.S. Bureau of Labor Statistics indicates that finding enough engineering talent to meet growing demand is not going to get easier. The rebuilding of infrastructure, along with new initiatives in fields like renewable energy, oil and gas extraction and robotics, will make competition for engineering talent more intense. Hiring leaders can best adapt to the new talent landscape by implementing upskilling and reskilling programs to bridge skill gaps and sourcing compatible experience from within adjacent industries.
For more than 30 years, Randstad Engineering has helped clients overcome their most pressing engineering challenges by providing the specialized talent they need to hire or helping them complete projects through our solutions practice. You can learn more about Randstad Engineering’s experience and services here.