March 2022 / Vol. 27 No. 3

By Claudia Jarrett, U.S. Country Manager, EU Automation

When semiconductor chip shortages first shut down automotive production lines in 2021, the semiconductor industry found itself under the spotlight. Suddenly everyone was talking about the tiny chips that enable so many different functions in automotive systems, household technologies, medical devices, and more. Now, a spotlight is needed on how the wider industry can overcome this shortage. Industry 4.0 and localization hold the answers.

Gartner predicts that the global semiconductor shortage will continue well into 2022. The time it takes to produce a single semiconductor might increase by six months, with more complex ones requiring up to a year.

These trends will affect manufacturers and consumers in a range of sectors. Manufacturers use semiconductor chips in applications, from touch screens, fingerprint sensors, and microcontrollers to automotive parts like interior lighting systems, seat controls, and blind-spot detection. Security, home appliances, and the game industry are other key sectors where these chips are used.

It’s clear that we are living in a semiconductor-dominated world. But how can these industries deal with the chip shortage? First, let’s look at what caused the shortage.

It’s a Small World

In hindsight, the global semiconductor shortage may have been inevitable. The issues that led to the shortage were present well before 2020.

First, manufacturing semiconductors is costly and complex. While some large companies like Intel design and manufacture their own chips, the sector otherwise relies on a few chip manufacturing facilities located predominantly in Southeast Asia. About three-quarters of all global chips are produced in China and Japan, while the most complex and advanced semiconductors are made in South Korea and Taiwan.

A benefit of this limited production is that geographical specialization can lead to technological excellence and help minimize costs for consumers. On the other hand, problems will inevitably arise when supply chains are so incredibly dependent on just a handful of companies in a particular region.

Socio-political issues have also contributed toward the shortage. These include escalating tensions between the US and Chinese governments, which caused the latter to stockpile record amounts of chips and the equipment used to produce them.

Elsewhere, major semiconductor manufacturers have needed to suspend production due to unforeseen circumstances. In the case of Samsung’s production plant in Austin, Texas, this was because of power outages caused by cold weather. Meanwhile, the Renesas plant in Japan had to cease activities after a fire.

Then came COVID-19. The pandemic prompted consumers and businesses worldwide to invest in technologies to stay connected and facilitate the growing need for home working. Demand soon surpassed supply, leading to the current situation.

Going Local

Fortunately, manufacturers worldwide can learn from the global chip crisis — including valuable lessons in resource management. They realize that diversified supply chains will be vital in overcoming emergencies, while governments worldwide are also spurring initiatives to increase semiconductor self-sufficiency in local markets.

Manufacturers might want to consider adding regional and local companies to their official supplier lists to minimize risks in case of adversities in one location. Localization has already been applied in the lithium-ion battery supply chain to avoid shortages. One example is the European Commission’s European Battery Alliance (ABA), founded in 2017 to establish a battery value chain. Numerous battery cell supplies have settled in Europe as a result.

Similarly, Amazon, Google, Apple, and Microsoft have founded the Semiconductors in America Coalition (SIAC) in the U.S. for semiconductors. The SIAC is a cross-sector alliance of companies that make and use semiconductors to strengthen American chip manufacturing and research. Meanwhile, the European Union (EU) is investing heavily in new facilities and equipment to produce 20 percent of the global chip supply by 2030.

Digitalization can play a crucial role in these initiatives. For example, Industry 4.0 technologies, like sensors, can give an all-encompassing view of supply chains. What’s more, investing in these technologies needn’t be expensive. Instead, it can be cost-effective to retrofit smart sensors to existing equipment. This is especially useful for preventative maintenance — when one node on a supply network is impacted, manufacturers might have time to react before a domino effect occurs.

Whether manufacturers are planning to buy legacy equipment or need help upgrading existing machines, industrial automation suppliers can promptly provide obsolete parts from all major manufacturers.