How the Chip Shortage is Affecting the Manufacturing Industry

Today’s digital world is impossible to imagine without millions of electronic devices such as smartphones, cars, robots, and even IoT devices. What all these devices have in common is the processing chip that allows them to function as intended. Unfortunately, a global shortage of these chips has not only led to the prices of these chips skyrocketing, slowing down the production of electronic devices.

The prices of chips shot between 20 to 40 percent. Some suppliers even extended the delivery dates of the chips to over 30 weeks. The world’s biggest chip manufacturer TSMC that manufactures chips for electronic giants like Apple, Nvidia, and Qualcomm, increased the price of its chips by 20 percent, leading to a chain reaction on the prices of other chipmakers.

Chip Shortage in Auto Industry

The effects of chip shortage can be seen in every sector, from the unavailability of PS5 consoles to giant automobile companies like Volvo, Toyota, and Ford slowing down and even halting production for the time being.

The auto industry is one of the highly affected industries due to the chip shortage. From engine control units and brakes to transmission control and steering, semiconductor chips are used in almost every aspect of an automobile.

Moreover, the robots tasked with the production of cars also require these chips to function. Several robot applications like robot vision, spot and arc welding, assembly, machine bending, and internal logistics are complex processes and are crucial for manufacturing. In fact, with more than 130,000 units of robots installed in all the facilities on a global level, the automotive industry is the largest consumer of robots.

Though the auto industry is reviving faster than expected, they had to make some crucial changes. They were forced to stop the production of some models and forced to send their workers home. The chipmakers also faced shortages due to increased demand and production constraints, which led them to prioritize chips for other industries. They gave importance to ones that were more profitable and less likely to be hit by the uncertain effects of the pandemic. A lockdown and shutting down of an auto plant could cost the entire industry more than $ 60.6 billion US dollars, which is a huge risk.

All the automotive companies felt the impact of the chip shortage. GM expects its earnings to be cut by 1.5 billion dollars in 2021, and Ford somewhere around 1 to 2.5 billion dollars. In addition, Nissan and Honda halted their production temporarily in their plants in Japan and North America.

The Role of Pandemic in the Chip Shortage

The chip shortage is highly linked to the COVID-19 pandemic we are fighting through, more likely due to the uneven geography distribution for chip design and manufacturing. For instance, the United States leads globally in the design of chips, whereas the leaders of its manufacturing are Taiwan and South Korea.

This uneven distribution became a major weakness in the semiconductor chip supply chain, especially during lockdown and travel restrictions. The chip shortage effect was also felt by the world’s largest automakers. As a result, most of them had to cut back production of their most popular car models.

Additionally, the US export control during the pandemic period forced global electronics manufacturers to secure their chip supply by stockpiling. As a result of this double-booking, many companies possessed more chips than they needed.

High Demand for Semiconductors

The lockdown forced people to stay at home, and for many, to even work from home. This increased the sales of consumer electronics such as smartphones, gaming consoles, webcams, and smart home appliances. All these devices need chips to function, and with a shortage of semiconductors, the chip supply chain issue only became worse.

One area, however, that remains out of focus is the robotics industry. Robots play a crucial role in manufacturing industries, be it automotive or mobile device production. The application of robotics also extends across the supply chain that leverages automation.

Robots make efficient manufacturing possible, from handling inventory in warehouses and operating assembly lines to dispatching the finished goods. However, the scarcity of chips means that the robotics industry will also have to face the consequences since they require sensors to operate. And, these sensors eventually depend on semiconductors.

Conclusion

The global chip shortage will significantly impact multiple industries this year. However, trends show that governments and businesses are rethinking their supply chain strategy. Research in the field of semiconductors is proliferating. The chances are that we may see more investments in chip design and manufacturing over the coming years and also more attempts to reshore critical components of the chip industry.

At Hokuyo-USA, we offer a full range of industrial sensor products for the factory automation, logistics automation, and process automation industries. We support OEMs, end-users, integrators, R&D firms, and resellers in manufacturing, material handling, autonomous robotics, and metals industry applications across North America.