The Importance of Supply Chain Management in Semiconductor Parts Manufacturing

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The supply chain management is a critical component in any industry, especially in the semiconductor industry.

It takes care of everything starting from the production of the semiconductors to the time that they are supplied to the market.

A proper supply chain management monitors and oversees all the activities that entail the flow of the semiconductor chips, including the procurement of the raw materials that are used for making the semiconductor parts.

From this brief, it is clear that  supply chain management is integrated or encompassed with literally every part of the organization. Even the end consumer  of the product is involved in it.

So, what is the importance of the supply chain management  in the manufacturing of the semiconductor parts?

Keep reading as we discuss the relevance of the supply chain management in the distribution the the semiconductor parts.

Overview of the semiconductor market

The semiconductor industry experienced some defining moments in 2020. The global demand for the semiconductor parts was ballooning beyond the expected levels. The supply chain for the chips was basically chaotic.

Semiconductor chip manufacturers have been forced to deploy all the necessary tools to stabilize the supply chain. They need to get the parts so as to assemble the chips as fast as possible so as to meet their market demand.

The fact that semiconductor chips are among the top five most traded commodities in the world piles immense pressure on its supply chain management. To give you a better picture, think of any electronic component. It is able to function because of the semiconductor chips.

Countries and governments are heavily investing the chip supply chain. For example, the Unites States and most countries in Europe are  at the forefront in terms of research and development of chips. They bare always coming out with new designs for chips and even filing IP. On the other hand, China is the undisputed king of chip assembly,fabrication, packaging until it forms a final product. It does this with a number of other countries in the East Asia.

No country has the full control  of the  supply chain, they depend on each other in one way or another. There are lots of movements of the chip parts and components from one end of the supply chain to another.

Components of the semiconductor supply chain

To appreciate the importance of the supply chain management in semiconductor industry, it will be prudent to know the key components that make up this chain.

• Design and development: It all start at the design stage of the semiconductor production. As the components are designed, the supply chain management should know which designs are good, where they will be used and for which market.
• Component fabrication: This stage  entails the actual fabrication of the semiconductor chips. The semiconductor foundries  receive the components and fabricate them on  the wafers. The supply chain also has some details of the fabrication.
• Testing the the semiconductor: Assuming that the semiconductor chips have been fabricated, the next step entails testing before they are  delivered to the end-users. Key players in the supply chain need to know that the components have been well tested and meet all the technical and non-technical requirements.
• Disribution of semiconductors: Now, this is where the supply chain is heavily involved. It fully takes care of the distribution of the components. Key players monitor where the parts of the semiconductors are going and he volume that it is distributed. Data from the distribution.

Key roles of the supply chain management in  the manufacturing of the semiconductors

Now let’s discuss all the essential roles that the supply chain management plays in the manufacturing of the semiconductor parts.

Cost management

It is important for the cost of the semiconductor parts to remain within a manageable cost. This is vital both to the chip manufacturer and even the end consumer of the electronic device that will be depending on the chips.

A supply chain management monitors all the factors of production and analyzes their impact on the cost of the semiconductor parts.

In most company setups, the supply chain management will do the maximum  research and strive to bring down the cost to manageable levels.

For example, the supply chain management will outline all the wastage in the supply chain and  recommend the right solutions. It can come up with the best methods of transporting, marketing and distributing the semiconductor components.

A supply chain management for the semiconductor components can help the chip manufacturer to gain more profits from the sale of its goods.

Managing the risks in the supply chain

It is called the supply chain management because it manages many aspects of semiconductors, including risk management.

The recent years have already proven how volatile  the semiconductor chip industry is.

In 2020, supply of the chips and its components was highly disrupted by the Covid-19 pandemic. This is just one of the risks that the supply chain management should look into and take care of.

Geopolitical situation is another risk factor that has been disrupting the supply of the semiconductor parts. This mainly tems from the conflicts between different countries and the effects tend to spill over to the semiconductor industry.

It is the role of the  supply chain management to monitor and assess such risks and give appropriate advice. The management should also design plans that will save businesses from the effects of such risk factors.

Collaborate with other players

In the semiconductor industry, it is increasingly hard for the key players to operate independently. Especially  going by how the industry has become vulnerable to different risks. Collaborations and partnerships have become normal in the industry.

It is the work of the supply chain management to initiate and maintain such collaborations.

The management identifies key players in the supply chain then look for ways to collaborate with them. These players include component manufacturers, suppliers, distributors, policy makers, data analysts, among others.

With such partnerships, it will be easy  to achieve a stable supply chain. For example, they will identify the current trend in the industry and predict key factors that will affect the supply chain in the near future.

Respond to the market

Another main importance of the semiconductor supply chain management is to enhance the responsiveness of the organizations to the supply chain.

As we have just discuss, the semiconductor industry is very volatile. It is embedded with events that keep changing the dynamics in the industry. The events may stem from the manufacturer’s side and at the same time from the consumer’s side.

The supply chain management  monitors all the events and responds accordingly.

For example, the management will used data from the market conditions to advise chip manufacturers on the right steps to take.

Semicondcutor supply chain vulnerabilities

We have just discussed that one of the functions of the supply chain management is to manage the risk factors or vulnerabilities. It will be prudent to highlight some of the vulnerabilities and how they affected the semiconductor supply chain.

• Natural disasters:  A major natural disaster is enough to disrupt the global semiconductor supply chain. For  example, in 2011, Japan was hit by a major earthquakethat affected the factories manufacturing semiconductor components.
• Pandemic: The Covid-19 pandemic in 2020left the semiconductor supply chain literally bleeding. Companies were affected by lockdowns which slowed down the production of the components.
• Geopolitical factors: Political tensions between major companies has affected the the supply chain of the semiconductor components.  Conflict between Russian and  Ukraine has affected the supply chain in one way or another. There is also some economic tensions between countries in the West and those in the Eastern Asia.

What is the outlook of the semiconductor supply chain

Image source Freepik

Still on the issue of the supply chain management, it will be smart to have a glimpse of the semiconductor supply chain outlook in 2023.

Well, it is clear that supply chain suffered a  major disruption in 2020 due to the Civd-19  pandemic.

However, as the impact of the pandemic continue to wane down, the supply chain has somehow been managed.

Aso, semiconductor parts manufacturers recovered from the pandemic by putting up necessary measures to save the supply chain. Among the measures was to increase their production capacities.

All signs are pointing towards a stable semiconductor supply chain by the end of 2023.

Conclusion

From this guide, it is impossible to underestimate the role of supply chain management in the semiconductor industry. It plans, controls and coordinates all the activities that are related to the supply and distribution of the semiconductor chips.

The chain encompasses all the key players in the industry including manufacturers of the semiconductor parts, suppliers of the raw materials, financiers, law enforcers, customers among others.

The ultimate goal of the supply chain management is to ensure that everything in relation to the semiconductor parts is handled smoothly.

Given the turbulent events that we have recently witnessed in the semiconductor  supply chain, it  is more important to appreciate the roles that the chain plays in streamlining the market.

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