Lessons we all need to learn: planning for potential risks

As component supply and demand gradually normalizes over the coming year, there’s a lesson we all need to learn from recent events: planning for potential risks is now a necessity. So, as component purchasers look to prioritize resilience, we take a look at some of the biggest threats that could challenge supply chain normality in the months to come.

Raw materials shortages

Component shortages may be abating, but a lack of raw materials could continue to hamper production for quite some time. Shortages of rare earth minerals and other materials are already impacting supply, with disruption likely to increase as limited supplies dwindle.

Right now, the primary contributor to this situation is the Russia-Ukraine war. Russia is a major supplier of metals and minerals used in electronic component production, notably palladium, a platinum group metal used during semiconductor manufacturing.

Despite the fact that the US doesn’t import a great deal of palladium direct from Russia, collective war sanctions have severely restricted its availability. As the war rumbles on, it’s possible the US could impose further sanctions, with Russia likely to retaliate by limiting exports of key metals.

But the problems don’t end there. Ukraine is also an exporter of key materials for electronics production, including neon, a substance used in the lithography process of microchip manufacturing. As of 2022 when Russia invaded Ukraine, the country’s top two neon producers (responsible for 90% of US supply) have stopped production.

With constraints on availability, raw material prices are inevitably creeping up. In the short term, this will keep lead times and prices high for some components, but long term, there’s a possibility it could limit the development of new technologies.

According to the International Energy Agency, the supply of minerals critical to the green energy transition is nowhere near on target to achieve net zero ambitions by 2050. Despite the fact that investment in the critical minerals pipeline grew by 30% in 2022, particularly around lithium, copper and nickel, there are still potential problems with project delivery times.

The result: expect the kind of continued uncertainty that precludes just-in-time manufacturing and necessitates just in case purchasing.

A tight labor market

With inflation subsiding in June and company layoffs reducing, the threat of recession appears to be receding. The labor market continues to be tight and many employers are reluctant to cut staff as rehiring could be tough if growth picks up in the course of the coming year.

What does all this mean for the US electronics industry? Primarily, a shortage of labor for the roll out of new semiconductor fabs funded by US government investment. The CHIPS and Science Act promised $52 billion to boost domestic chip manufacturing, creating thousands of jobs in the process. The question now, however, is will there be enough people to fill those vacancies?

TSMC is already struggling to find skilled workers to install equipment at its new Arizona fab. The plant (the company’s first in the US) began construction in 2021, but thanks to the lack of US expertise, completion is now delayed. Despite sending technicians from Taiwan to train local employees, production of N4 process technology is expected to be pushed out to 2025.

Looking ahead, once the construction phase is over, there are concerns that a lack of engineers and technicians will challenge domestic semiconductor production for years to come. There are not enough students in the relevant academic field and of those taking STEM subjects, few are opting to go into the electronics industry.

As recent figures from Deloitte highlight, this could result in a shortfall of 70,000 to 90,000 workers. This comes as no surprise, with Intel alone revealing that it will create a total of 6,700 new jobs for graduates over the next five to 10 years thanks to its $40 billion investment in US fab construction.

Clearly, something has to change if we are to feel the benefit of America’s semiconductor boom.

Increasing cyber crime risks

One last challenge on the supply chain horizon is the increasing threat of cyber crime. In recent years the logistics and supply chain sector has become a prime target for cyber criminals for several reasons:

It’s a big target – logistics is now one of the most profitable industries in the world making it a logical target for criminals hoping to cause disruption and maximize their potential takings.

Digital doesn’t always mean secure – although the electronics supply chain is all about moving components, there’s also a vast digital data trail. Think invoices, export certificates and quality approvals. With so much digital data sharing, there’s an increased chance cyber criminals can intercept information.

Multiple handlers – with many disparate cargo handlers involved in moving components, each with varying degrees of cyber security, it’s possible for cyber criminals to exploit weaknesses.

With many and varied threats to the supply chain, it’s perfectly possible that shortages will rear their ugly head again in the future, but by working with search experts like the team at AERI, you can secure all the key components for your build.

Whether you’re frustrated because you can’t source a part you desperately need, or scared you might receive counterfeit components when purchasing from the open market, contact the expert team at www.AERI.com to find out how we can help.

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