The Continuing Effects of the Chip Shortage — and the Potential Solutions

In 2021, production lines began to shut down. The culprit? The tiny semiconductor chips that keep modern life going, whether powering the medical devices that help keep people alive or making sure the anti-lock brakes work correctly on your car. The chip shortage, which had a worldwide reach, made many people realize for the first time how dependent we are on our electronic devices — and on the global supply chain.

While the worst of the crisis appears to be over, the semiconductor chip crisis has affected many industries, including aerospace, defense, and medical device manufacturers. Everything from your TV and pacemaker to your camera and even your electric toothbrush needs those chips. The chip shortage has lasted for more than 18 months at this point. While the end may be in sight, there are a lot of lessons to be learned from the shortage — and a possibility that it could continue into 2024 or even 2025.

Why Is There a Chip Shortage?

The chip shortage is one of the many effects of the COVID-19 pandemic that laid waste on the global economy in 2020. When the pandemic hit, sales of various products that rely on them decreased dramatically. As a result, manufacturers around the world stopped their chip orders. In addition, chip manufacturers started to shut down their plants due to the pandemic and decreased orders. At the same time, with millions of people stranded at home during lockdowns, the demand for home entertainment (think gaming consoles, TVs, smartphones, and tablets) rocketed. This compounded the pressure on chip manufacturers.

To make the situation direr, two major chip manufacturing plants were forced offline. In May 2020, Japan’s huge Renesas Electronics chip manufacturing plant was hit by a massive fire, knocking the plant completely out of commission for more than six months. In addition, winter weather in Texas shut down a big Samsung chip plant there in late 2020.

Automakers were hit especially hard by this confluence of events, but they weren’t the only ones. Manufacturers of medical devices, including patient monitoring systems, infusion pumps, MRI machines, and even blood pressure cuffs, found they couldn’t get the chips they needed. While the aerospace and defense industries weren’t so severely hit since they rely on older-model semiconductors, the supply chain issues that compounded the chip shortage impacted them also.

Many manufacturers have relied on “just-in-time” ordering and purchasing of parts for years. Under this system, factories don’t keep parts in inventory but rely on the global supply chain to function correctly. As a result, they have no production if a shortage or supply chain issue occurs. For example, in the medical device world, many companies had to stop production of certain lines entirely because they couldn’t buy the components they needed. As a result, overall production dropped by as much as 80% during 2022.

The “legacy” chips demanded in automotive, aerospace and defense applications aren’t particularly complex or difficult to produce, as chips go. However, because of the increased demand for infotainment and computer chips, many manufacturers shifted their production lines to make the more complex chips needed for these applications, effectively servicing the existing demand. The chip manufacturers were happy to make that shift, by and large, because the profit margin on these more complex chips is much higher than on the legacy chips needed by automobiles. As a result, when manufacturers were ready to order more chips, the production capacity was no longer available to meet their needs.

An added complication, many chips are manufactured in Southeast Asia, including Vietnam, Malaysia and Indonesia. As vaccination lagged in these regions, the testing, production and packaging of chips were further delayed by gaps in the workforce.

The Effects of the Chip Shortage

Medical device companies were slammed by the chip shortage across the board. Most MedTech devices require third-generation chips, putting companies in competition with the high-demand automotive and consumer electronics industries. Supply chain delays have ranged from 2 weeks to over a year, and some companies are even being told that 2023 purchase orders may not be fillable.

Not surprisingly, electronics and appliance manufacturers are also having trouble meeting production demands. The release of new smartphone models is likely to face delays, and gaming console manufacturers have been very hard hit, with prices increasing and new models being released late. Even relatively low-tech appliances such as toasters are feeling the pain of the chip shortage.

Supply Chain Issues

Supply chain issues around the world compounded the chip shortage. A shortage of shipping containers kept chips from reaching their destinations, which meant that computers, cars and appliances couldn’t be completed and moved from the manufacturing line into the marketplace. The extended supply chain involved with many consumer products will likely take many more months to resolve.

Solutions to the Chip Shortage

Solutions to the chip shortage are being proposed and implemented at every level. For example, in August 2022, President Biden signed the CHIPS and Science Act, which promotes chip manufacturing in the United States with an investment of $52.7 billion. This act intends to move chip manufacturing back to the US so domestic manufacturers aren’t so reliant on Asian chipmakers and a smooth-running supply chain.

Chip makers worldwide have increased their output, with China leading the way, but the United States is moving up. Intel is building two colossal chip manufacturing plants in Arizona, and Samsung has a new plant expected to come online in Texas in 2025. And many industries are thinking twice about “just-in-time” inventory delivery, with more companies stockpiling chips to prevent a similar crisis in the future.

Semiconductor companies are also investing in innovative tech to create chips that will drive AI and the Internet of Things, among other applications. Auto manufacturers, in particular, are rethinking how they use chips in an effort to use fewer chips in their modules.

What to Expect Going Forward

Original predictions (back in the pandemic days of 2020) suggested the chip shortage would resolve by 2022. Now, people say its ramifications will stretch through 2023, with gradual improvements through 2024. As a result, companies dependent on semiconductor chips need to make plans that include stocking up on chip inventory and looking for new suppliers closer to home.

Planning involves more than inventory, of course. Your company needs to be able to crew up to meet your staffing needs as they evolve. So let Marquee Staffing be part of your plans to make sure you’re never caught in a crisis. Contact us today or visit our website to see how we can help you keep your company healthy and thriving through 2023. Our Website: