On February 24, 2021, President Joe Biden signed an Executive Order to address the global semiconductor chip shortage. Designed as a 100-day review of supply chain effectiveness, and citing that the United States accounts for 12.5% of semiconductor manufacturing, this EO is a part of a continuous stream of policy assuming that made in America is good for America. Protectionism is a barrier to supply chain effectiveness.
This week, the automotive sector forecasts the delay of one million vehicles in the first quarter due to the semiconductor shortage. Yes, there is a semiconductor shortage, but given a choice, would you rather ship a product to a company that pays in 30 days or 120? Surging demand in the home electronics industry with more robust supply chain practices will win in the competitive market for semiconductor chips.
The lesson is strong supply chain practices help companies succeed in world markets. If I were the Biden administration, I would side-step the advice from large consultancies form a council of manufacturing executives to drive global competiveness and architect a Supply Chain Modernization Act.
WASHINGTON, DC - FEBRUARY 24: U.S. President Joe Biden holds a semiconductor during his remarks ... [+]
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Supply chain management improves business outcomes by coordinating manufacturing, procurement, and delivery processes together. As the supply chain evolved, it became more global with increased complexity. The move to a global supply chain increases both opportunity and risk elevating the need for planning and supplier collaboration. Neither is a strength of the automotive industry.
The Covid-19 pandemic tests the global supply chain. In prior risk management disruptions, like a hurricane or a flood, an event occurred and the industry then adjusted for a new normal. In the Covid-19 pandemic, the only new normal is constant change. Business leaders are riding the waves of disruption after disruption elevating the importance of business planning and supplier collaboration.
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Companies with mature supply chain planning processes performed better in the pandemic. In recent research, we find mature capabilities in order-promising, production scheduling, and Sales and Operations (S&OP) planning, improves agility and resilience. When it comes to planning, the high-tech industry outperforms automotive.
Shifts in the supply chain response during the pandemic.
Supply Chain InsightsBased on the responses of 118 manufacturing respondents self-rating their supply chains during the pandemic on a scale of one-to-five with five being a strong score, there are many lessons to be learned. During the pandemic, supply chains became more reactive—more meetings and one-off initiatives—but not more proactive or effective. In short, the primary drivers of the semiconductor shortages are an increase in market demand, and the lack of effective industry planning and supplier collaboration.
In this discussion, precise definitions are paramount. A responsive supply chain matches the cycle of the supply chain response with market expectations. In contrast, an agile supply chain has the same cost, quality, and customer service given the level of demand and supply variability. A resilient supply chain response produces consistent balance sheet results in growth, margin, inventory turns, and Return on Invested Capital (ROIC). Note that supply chains became less resilient, agile and proactive during the pandemic. The answer is designing the supply chain response and using market data to align networks.
Wrap-up
The handprint of the pandemic will redefine supply chain processes. We are living in a supply chain case study. Joe, the answer is not protectionism and a made in America policy; the right question is how to build better based on the lessons learned. This is an opportunity to lead.
The Link LonkFebruary 25, 2021 at 08:04PM
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The Semiconductor Chip Shortage Offers Lessons To Build Better - Forbes
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