The Logistics Tribe

The Logistics Tribe


Back to episode

00:00:02: Hello and welcome to the logistics tribe I'm your host voice felgendreher and today's episode is about the ongoing semiconductor shortage it's been sending ripples across our supply chains for many months now.

00:00:17: With no end in sight the story of what exactly is going on and what products and industries are affected

00:00:23: keeps evolving to the point where I feel like I just need someone to really break down the situation for us so I think Richard Barnett whom I've known for many years

00:00:33: Richard has a very Broad and very deep understanding of manufacturing Supply chains he's currently the CMO at supplyframe supplyframe was founded

00:00:42: in 2003 with a vision of transforming the way supply chain leaders interact with electronic component suppliers

00:00:50: Distributors and manufacturers so spot-on for our topic today but before we get started with today's episode there are some great news I like to share about the logistics tribe

00:01:00: I am super excited to be able to announce that gray orange has become an official

00:01:06: sponsor and partner of the logistics tribe podcast now if you have anything to do with e-commerce Logistics fulfillment and Warehouse automation you probably already know about great orange and if you don't I I think you should great orange is really known for combining

00:01:22: AI driven Cloud software.

00:01:24: And smart robots you know and warehouses and fulfillment centers the company's been around here in Europe in my neck of the woods for a while now but they're really making a major push into the market right now I mean I hear about them everywhere for example,

00:01:38: act events.

00:01:40: The Dutch Ecommerce Logistics provider has just opened sort of very new brand spanking new state-of-the-art e-commerce fulfillment center in Belgium

00:01:49: and it's full of great orange robots and their working side-by-side together with humans and that's really good news ahead of the holiday season

00:01:56: and also a couple of folks from my network have recently joined the gray orange Ami organization and to me that's that's always a good sign in any case if you want to learn more about AI driven e-commerce automation

00:02:09: check out the great orange website I'll leave a link in the show notes alright and now we're on to the show Here Comes Richard Barnett from supplyframe enjoy

00:02:19: hello Richard welcome to the logistics tribe thanks for being on the program thanks for is it's a pleasure to join you awesome I'm glad you made it Richard as you probably know the audience of the logistics tribe is probably a hundred percent supply chain Logistics professionals

00:02:34: hmm it's probably fair to assume that all of those have heard that there is a global semiconductor shortage and crisis going on and going on for quite a while

00:02:43: and if they're anything like me they've been monitoring the story for a while now right for like a year or even 18 months has been going on right and if you go back to sort of the early part of the story and look at the predictions of what people said back in the days.

00:02:57: Everybody assumed that it would be over by now the latest and the story just keeps going on and keep going on and and keeps changing and more angles and more nuances come into the picture where I feel like I need someone to give me the crash course

00:03:11: on what this whole thing is about.

00:03:13: Not for the lame man right as you would see in a business press where it's always like sort of right now I'm down in a way where it's like it's very superficial I mean I've read several articles and still not smarter than before.

00:03:23: It's all in the context of of our audience being a supply chain Logistics professional audience but we still need somebody who brings it all together.

00:03:31: And as I thought about who can invite the first person that popped into my mind was you because you have such a strong expertise and experience in everything supply chain automotive and now an electronic supply chain maybe before we start just give us a very very short version of,

00:03:45: of your background then it becomes probably very obvious of why you are the perfect candidate that I paint sure I appreciate that person obviously,

00:03:54: I'm also passionate about this issue you know in terms of engaging with supply chain professionals Logistics leaders Transportation leaders Etc

00:04:02: to understand you know what's happening at a little bit deeper level with some of the root causes are some of the key trends and Dynamics and to your point you know just by way of background.

00:04:13: I started you know getting excited about Supply chains and.

00:04:19: You know optimization of Supply chains and integrated Supply Chain management back in the late 90s I actually started working with a company called I to Technologies kind of really at the Forefront of,

00:04:30: Supply Chain management really is a new category we had this kind of convergence of both process and strategy change going on but also.

00:04:38: Yes application of new technologies right so at the time was running to play cheap playing optimization but later my career I worked at companies that

00:04:46: focus on different aspects of this challenge right whether it's the B2B integration aspects or how do you have collaborative Supply management work in each row open.

00:04:55: Working through it a Channel or working through a multi-tier supply chain how do you have a business network based approach for.

00:05:01: Visibility and for exception management and for collapsing lead times and reducing inventory buffers and then you know we also work together at GT Nexus,

00:05:11: in there was a tremendous amount of work around thinking about how do we continue to evolve the notion of.

00:05:15: You know Logistics integrated more in supply chain and the word management flows and multimodal you know visibility and as a community and supply chain,

00:05:24: we just made tremendous progress in many aspects of this over the last you know five to six years and it's just you know it's really kind of cool to see it kind of come together in terms of really getting to Global you know visibility you know that's these new platforms

00:05:41: and you know but I've always had this passion also for the high-tech industry because it was always one of the earliest.

00:05:46: You know leverage Outsource contract manufacturing and Global Logistics providers and be part of that broader globalization Trend particularly with Manufacturing in China and that's really.

00:05:57: Been fascinating to watch unfold but it is also brought a tremendous amount of new challenges.

00:06:03: So how do you manage and operate with agility with resiliency you know in that Global supply chain and I had an opportunity to.

00:06:13: Kind of more focused and more recently and direct materials management and in what are those decisions that are made in new product introduction even before you launch to manufacturing and then start activate the new supply chain you're designing with each product that you're building right and I think,

00:06:27: folks miss that idea right that they're directly tied together and I became the chief marketing officer at supplyframe which really focuses on.

00:06:35: Particularly the global Electronics value chain with what we have what we call this designed to Source intelligence platform and network where we're looking at you know,

00:06:45: combining sort of Engagement with engineers and supply chain professionals on websites you know where they're doing Vertical Search or Community insights it's really cool like,

00:06:54: take it all this digital exhaust and then doing something with it you know having you predictive insights around what's going on with the design cycles and what's the leading indicators of demand.

00:07:02: You know in all these kind of again it's a network driven kind of Community Driven platform approach and and then we have SAS solutions that help companies make better decisions and D risk.

00:07:14: Particularly product design at the you know and drive resiliency in that stage and then manage those bills of materials is product life cycles all the way through.

00:07:22: And so we've really been in this weird position of being like on the front lines of watching and monitoring exactly what unfolded.

00:07:30: Covid head so we talk a lot more about that but I mean this is give you a little bit of a.

00:07:34: I'm an overview of my background you know my passion for this topic but really more interesting Lee just very recently.

00:07:41: Having this unique front row seat to everything's been happening it's been fascinating yeah and also maybe people know the name supplyframe through the recent headlines that you guys made because you were just recently acquired by Siemens.

00:07:54: The big gigantic dress right that's right we're part of the Siemens family now very we're all very excited I mean the.

00:08:02: We entered a process earlier this year you know and Siemens was really intrigued and interested around the center uses as where.

00:08:10: Not just within you know sort of Siemens portfolio of software Solutions really around design.

00:08:17: You know Eda and in sort of product life cycle management.

00:08:22: Maybe people don't know Siemens as a software company but there is substantial software company in their own right we joined that digital industry software group.

00:08:30: But there's also this interest in Siemens globally to understand what we've done at supplyframe around digital Marketplace models business models and how they can apply that same learning to you know how what they're trying to do to transform.

00:08:44: New forms of solutions that are more networked and Marketplace driven for their Global customers and so that's a really exciting opportunity to collaborate with

00:08:53: with the broader Siemens company yeah awesome exciting times so yeah let's let's Jump Right In let's jump into a crash course here to set the stage

00:09:03: and so I want to focus most of the time obviously on the most acute crisis you know exacerbated and started and triggered by by covid I mean that's obvious but

00:09:12: maybe quickly set the stage and describe to us the situation right before covid-19 semiconductor Market looking like before that was it already in a situation where there was more demand and Supply was it a glut was there more supply and demand wasn't balanced what did the situation look like before she hit the victim speak

00:09:30: yeah and I think that's a really important.

00:09:32: Point because we saw this scene before covid hit but I think a lot of folks sort of not really close to the overall Dynamics in the industry.

00:09:40: Sorry had a false confidence that,

00:09:42: it's demand and Supply where alignment you know there's a very normal Market you know everything's fine and the reality was there was a pressure cooker you know bomb ticking you know in a lot of ways underneath the hood.

00:09:56: In terms of supply-demand match you know in the sort of cycles of.

00:09:59: Gross in demand and all these Downstream Industries with the actual constraints apply and Lead times and commitments that were being made just around Foundry and Fab capacity much less,

00:10:10: the roadmap of semiconductor companies and the evolution of kind of the high-tech industry and value chain overall.

00:10:16: And the big story there right is just the general electrification.

00:10:21: Digitization of everything yeah everything yeah you know as consumers you know as you know Business Leaders in manufacturing Etc I mean.

00:10:30: Every new product you know everything from,

00:10:33: in there was a joke about the chip shortage impacting dog collar you know smart collars for you know for pet owners you know what I mean like that was a big issue you know you know we see but we see this in smart connected.

00:10:47: Devices and experiences you know in every industry I mean whether it's Precision agriculture where you have Harvesters that are you know being automatically driven down a specific path,

00:10:58: based on the optimized weather patterns and satellite imagery Etc you know and the folks that make Harvesters a big a quipment generally are what I call Heavy Metal you know what I mean they were they're not necessary like Tronics giasses

00:11:10: but this is the way that you differentiate create new value is digitizing those products and services I mean the same thing we talked about this you know,

00:11:18: in industrial equipment in medical devices right it's not just in consumer electronics and high-tech and Communications data centers and then obviously right the center of our discussions really run on a motive,

00:11:29: where you know like passenger vehicle and trucks and then even heavy trucks now are increasingly becoming electrified not just Ivysaur autonomous driving but just everything about these these cars and trucks.

00:11:42: Are basically computers on Wheels and so that demand Drive including 5G and Telecommunications you know which is a really long ramp at a huge driver of demand.

00:11:52: All of that was about to come online like anyway right regardless of covid yeah and.

00:11:58: You know well it was healthy for the overall semiconductor industry from a forecast sales and growth generally they were still right writing a very tight game where they were

00:12:08: only committing to New Capital capacity when he had a really high confidence they had forward-looking demand you know and they would do this kind of In Waves right so we have this inherent cyclic ality upstream and the electronics value chain.

00:12:20: Particularly around semiconductor because so acid tensive.

00:12:24: But you just you know you've got to raise additional additional Capital every new Foundry everything Fabs cost generally is increasing 20-30 percent you know every every year every technology change in transition.

00:12:36: So we already were facing a lot of challenges and we were in the wrong stage of the cycle in the capital expenditure cycle around semiconductor,

00:12:44: at the same time that covid-19 about to hit so it's kind of General setup yeah yeah and if I understand you correctly it's really hard to get new additional facilities online and to ramp up,

00:12:55: production quickly is a major challenge right so what you're describing is there they're basically constantly out of sync by the time.

00:13:03: You made the decision to ramp up production by the time it comes online,

00:13:07: you know the economic cycle for whatever product may already be on the down slope so you always sort of chasing the tail so to speak you always in that and that's sort of weird moment where those Cycles are out of sync and that's that's been going on for why you saying right yeah it's true and

00:13:21: you know I mean if you just look at some of the data right so an average new Fab.

00:13:25: You know for say I season chipsets you know for these chips we're talking about,

00:13:32: you know depending on the on the serve technology area or in so level of sort of you know nanometer or levels or technology sets right so you have some way first you know and.

00:13:43: And in diodes I mean some Wafers and fabric production that is geared towards you know sensors Etc that don't have to be

00:13:53: you know the smallest possible you know what I mean and you have the new M1 chips that from for apple or Intel's new lineup or Nvidia and AMD they're constantly pushing the envelope on the smallest,

00:14:06: you know sort of level of lithographic you know Printing and management of integrated chips at design.

00:14:15: And that brings along all this semiconductor equipment that super highly specialized around that has long lead times to build and it's really complicated and so all of this build means that you know to bring a new Fab online.

00:14:27: You know is somewhere between two to four years and you know.

00:14:33: Get a you're making a bet on a market that's maybe three years out right and so you might be hitting it just right in terms of an inflection point and new technology cycle coming into place,

00:14:42: or you might get it slightly wrong and you need to repurpose demand and use that capacity for different reasons so there's a lot of variability around those Cycles it's never perfect,

00:14:51: no we are already behind that curve you know what I mean got it right and we fast-forward to sort of the covid yeah yeah that's probably the hardest thing to really wrap your head around understand.

00:15:01: The fact that you know by now you would think like okay what's the issue like why haven't you ramped up production because this is the opportunity of a lifetime why don't you just crank crank it up to level

00:15:11: you know 11 and just take advantage of the situation but as much as they want to they they probably can write because of all the reasons you just described yeah yeah let's let's jump into covid-19 happened

00:15:20: you know doing the sort of the the when shit hit the fan doing covert what dynamic started to play are then I think this is this is something a supply chain professionals the right we're actually pretty close

00:15:31: like that you know so the front lines are what just what we are watching happen right because it was very disruptive very very quickly right so the first.

00:15:38: Way you saw of covid as it sort of started in China you know Wuhan and then the region and then try and show you down responding to a very quickly.

00:15:47: And then the ripple effect me basically as a started to spread across the Americas Europe you know Africa and Asia the rest of Asia.

00:15:55: Um you know the first wave was that you had production shutdowns you had you know production facilities going to lock down production start start stop.

00:16:05: You know workers being you know furloughed etcetera just to get a sense of how do we make it more secure safe.

00:16:11: Do we bring production back online you know all of that.

00:16:15: Kind of in every area it hit lasted for about 45 days to 60 days at the minimum.

00:16:21: Rain so we watched China actually manufacturing go offline and come back online between 30 to 45 days,

00:16:28: in many key industry and factories within China which is incredibly resilient I mean they really were doing yeah absolutely their best or try to contain this thing,

00:16:37: but then the other big impact is you had everyone go into to you know work from home or you know stayed at home orders right and different major particularly urban areas Etc.

00:16:48: And that meant kids were going to school and I meant we were trying to figure out how to work from home and you know yet you know use e-commerce and mobile services.

00:16:57: Massive shift

00:16:59: like overnight externality right nothing driven by normal Organic Market anything right around the consumption in need demand for you no work at home equipment you know my

00:17:10: my HD camera you know for for doing you know web conferences was you know impossible to find I do a guy mighty mighty Lee.

00:17:19: It's just a superstar I have no idea still to this day how he found one for me that was a good property HD level 1 but he found one you know,

00:17:26: did everyone was scrambling did you get a promotion right after yeah totally right I mean it's just you know Magic Band.

00:17:35: But everyone was in the same boat right and we were also taking kids and trying to figure out oh my God overnight.

00:17:40: Will you distance learning you know we need extra laptops we've got you know whole families you know and their various days you know in some corner of the maybe an apartment you know trying to all work from home incredibly stressful and then.

00:17:53: You know you want contact list delivery restaurants or shut down so you have all this massive explosion in e-commerce and you have a bunch of things that now have no demand.

00:18:03: Like overnight so anything that feeds into commercial real estate and manufacturing plants that were shut down and more importantly.

00:18:11: Consumer demand in general for certain things like cars right because no one's driving anywhere you know and you know anyone who had plans maybe to buy a new car

00:18:20: that's a big investment decision you know with all the uncertainty want to wait you have no idea what you're in fact is your job your family everything else so you've got this this huge demand and mix change that happens overnight we're certain areas that were very run-rate very boring

00:18:35: like accessories for laptops you know just total run rate demand spiked overnight and then the other hand you had,

00:18:42: you know massive committed forecast and Supply chains are all geared for a specific maybe seasonality or forecast for the rest year particularly Automotive just,

00:18:51: turn off almost immediately like overnight and,

00:18:56: you know what happened why is that you have this huge demand makes change and it's occurring across multiple Supply chains right so you know again as pledging professionals we know that there's a different fast-moving consumer goods

00:19:09: you know speed velocity packaging science you know you know distribution networks are a profile mode profile for transportation totally different from.

00:19:18: You know what you see in a sort of very repeatable kind of locked in stable capacity and what utilization of every lane of every kind of you know receiving dock.

00:19:28: Yet particularly Automotive which is really built around just in time just in sequence like a continuous flow you know material Parts suppliers Etc all the way through final study out through a dealer Network all of that got disrupted,

00:19:40: you know very very quickly and it had a big massive what we call bullwhip effect

00:19:46: an acceleration of change that impact the whole value chain like overnight yeah and what did the automotive manufacturers in particular because they are particularly hard hit and a lot of the story around the semiconductor shortage is focused around Automotive because they got they got it

00:20:01: kluber they got hammered right yeah talk to us about what there

00:20:05: Cardinal mistake or what their reaction was that sort of exacerbated that situation when when demand drop of automobiles

00:20:11: and then what happened what how did they react and how did they--how did they miss calculate the situation right well I mean I think the first Domino if you will to fall was

00:20:21: generally the oems,

00:20:24: when they saw this man fall off very quickly and so any kind of local market prediction wherever they were selling cars through a dealer Network Etc.

00:20:33: Immediately said yeah we're well you know demands fall into no no we can't even have people on site you know what I mean we don't have a safe way for people to preview cars you know people are not,

00:20:45: online orders even went down immediately all the early indicators so what they did was they just immediately decommitted.

00:20:53: For both their you know production schedules right on output volume and on their overall committed demand as they aggregated across or dealer Networks

00:21:02: and then they because they are engineered the the supply chain the automotive supply chain is really structurally engineered to optimize.

00:21:10: You know minimal inventory holding and push almost liability for lead time and performance and quality and all those good things

00:21:19: Upstream at each tear you these oems and these tier ones that kind of build subassemblies whether it's transmission and chaste the electrical harnesses or it's in the newer modern.

00:21:29: You know systems around mobility and and you know computer vision lidar you know all of these new technologies right they all have specialization at the Tier 1 or at the tier 2 and then they're buying Upstream from either distributors

00:21:43: or directly from Key suppliers and semiconductor companies and and they are all built on the Fordham and of the OEM so as soon as that that demand was decommitted

00:21:52: and there's a huge liability associated coldly in the inventory that's a high value that's not committed their the Domino's just rolled back super fast,

00:22:02: no one in that chain really and I'm overly simplifying that at a high level was in scented.

00:22:07: To hold strategic inventory to hold the extra liability based on the uncertainty and the financial models were very very difficult for the oems to buffer.

00:22:17: That immediate shock to the system there's no you know sort of specific incentive programs or but you don't buy a capital budget outlays or long-term contract agreements,

00:22:28: that are built in the system that's a shock absorber that allows an incense for managing this disruption so they just.

00:22:36: It just the ripple effect was massive it took almost no time for it to hit every key player Upstream.

00:22:44: You know but the rest of the market wasn't standing still so it's an interesting you know that I think that's the big sort of early.

00:22:51: Way that we saw happen from you know March of 2020 really really just keep got rolling through even November.

00:22:59: In December where you actually saw for the first time the visibility of the chip shortage is now in PNG non production

00:23:05: right so those first six to eight months were really the interesting window to look at yeah and so so the so they cancel all the orders for semiconductors from the manufacturers in Taiwan and wherever

00:23:16: and what happened to that production capacity that the that the chip manufacturers had produced they shifted it.

00:23:24: Other Demand right there just gave it away they sort of shifted and it went away right right yeah so this cannibalization if you will write about available demand or that orderly time or that supplyframe.

00:23:35: Is really interesting because you know this is one of those things again that not everyone kind of understands or fully appreciates right but.

00:23:44: The same audio ICS the same resistors you know controllers diodes cetera that go into a car or like vehicle truck or the same things that go into a PlayStation Shanna

00:23:53: you know a you know anything you know wearables consumer electronics.

00:23:59: Data centers Etc you know Electronics is one of those really interesting Industries where you have this mix of.

00:24:05: A few very high value typically like individually design components or processors or capabilities you know like,

00:24:13: even displays may be right that are done in partnership with a couple key lead suppliers but the majority of what you're purchasing assembling anxiety into a PC.

00:24:22: The four-door to atone assembly is coming from standard components and we track for example over 600 million standard components and we look at their risk Frank with their life cycle.

00:24:33: We look at their real-time inventory you know availability,

00:24:37: lead sign pricing changes and all of these form fit function equivalence right so there's often times a lot of components that can be built by.

00:24:44: What are more suppliers or there's parts that are sort of slightly different but can kind of be used in the same design if they're designed in.

00:24:52: Correctly and that's the thing right is it soon as that Downstream demand for automotive be committed and you saw this spike in the need for,

00:25:01: you know everything Tech at home basically and all that you know indirectly all the mobile services you know you know internet-based Services now for data centers Etc now there are spiking.

00:25:13: That all consumed available inventory that was the same inventory the same product same parts and same capacity.

00:25:20: The generally was being committed by either the oems or their their one suppliers yeah and probably even worse the situation that,

00:25:29: as much as the automotive manufacturers are dependent on the chip manufacturers it's not really the other way around right so the

00:25:35: the chip manufacturers don't really need the automotive Market as much I mean that they needed and there's a lot of lot of volume goes into that market but the the other part that you're describing everything else that's not Automotive is a much bigger client base and much larger volumes for the chip manufacturers if I understand correctly right yeah I mean that's the I sometimes refer to as until it to cities right

00:25:55: that you know the automotive value chain is sort of split between.

00:25:58: Heavy metal generally speaking and like you know super fast clock speed you know electronic design digital Services right and.

00:26:08: The automotive industry is sort of geared for the oems feeling like they've got a tremendous amount of Leverage.

00:26:14: Mind the spend and Elite times the production of heavy metal part of their supply chain and do right you got these very long-term relationships from everyone from,

00:26:25: you know engine manufacturers transmission alternators you know you know even tire manufacturers right I'm just locked in Bosch Conte etcetera and Germany with all the major German oh um so I mean that's a super.

00:26:37: Integrated you know sir successor to these companies are very locked in.

00:26:41: No electronics that's not the case at all the clock speed on the technology lifecycle and components you know is 3x 4X faster than the life's the life cycle of a lot of these sort of,

00:26:53: major Heavy Metal Key components and systems that are put into a life cycle of of a you know an automotive program family let's say a platform,

00:27:01: for five to seven years right and a consumer electronics could be 18 months you know or even less right so you got this massive shift in time the other big big issue is is that Automotive oems in automotive value stream.

00:27:13: Now for without good reason want the highest quality parts and opponents of the highest reliability at the lowest cost

00:27:21: right because they are such a mature industry they optimized for crossed all the time but they don't want to get you know cause straight off to Quality or reliability is very high expectations right

00:27:30: yeah I mean some of this is governed by law right I mean it's some components yes can compromise yes one thing if your PlayStation breaks down is the other part of your

00:27:39: whatever you are back with something doesn't function your nose right quality standards is true consumer you know

00:27:44: you know wrist you know you've got these are regulated Industries to your point and by every you know major sort of you know.

00:27:53: Authority you know sort of domain right whether it's at a regional level or country the state level right you know all others highly regulated strew of medical devices as well it's very similar.

00:28:04: So there's a high cost of compliance they want the lowest cost of that at the highest level reliability.

00:28:11: And they have the lowest relative volumes for almost anything else is being built so like just look at the new iPhone 13 watt training you know the your.

00:28:21: The projected unit volume sales is in the hundreds of millions right,

00:28:26: for any new the most popular car platforms like truck platforms say afford one it you know F-150 in the United States for example or many of the Toyota Honda Etc you know sort of products globally.

00:28:41: Yeah maybe they'll hit a hundred thousand you know for that for that product model type you know in a year right over the life cycle maybe Max 200,000 right.

00:28:51: It's 1/10 211 thousands of the total top-line volume and so if you're competing for you know I want allocate a capacity and bleep time.

00:29:01: And by the way I would the lowest cost and by the way I want the highest level reliability and it may include you and the liability of these Downstream uses right if your component fails to maybe you're on the hook right for a failure in the car.

00:29:13: So I'm very expensive to do business with.

00:29:16: It is demand shift change who loses their right where you going to prefer writing to shift Your Capacity you're going to,

00:29:23: you're going to shift it around and you know they don't want to totally turn it off.

00:29:27: Because they want to lose any of that valuable business because it's a really really important part of their business model and key semiconductor companies have somewhere up to forty fifty percent of the total demand.

00:29:36: Generally Source from Automotive I mean it's highly concentrated right bye.

00:29:41: You lose out when it's when it's an open market Dynamic and it's really you know it's really a story of Industry versus industry not even company versus company you know what I mean and it's a story of,

00:29:53: multi-tier value chains that you know where incentive alignment for liability and for lead-time commits and everything else.

00:30:00: Is stress tested and that's exactly what happened in covid as we saw all of the faults and chain.

00:30:06: You know all the fragility all of the lack of incentive alignment you know

00:30:10: just get exposed in a big way and the owners got hammered right I mean there's not a single automotive company that didn't have to hold production and didn't

00:30:19: you know suffer year end results and bottom line is affecting every I mean even to think just a couple of days ago I heard

00:30:26: the fox wagon is still impacted they still have to

00:30:30: cut bag expectations and production hold and all kinds of stuff everywhere not a single one or is there one am I missing one is there was there somebody that hasn't wasn't a better position for some reason or another or was just got lucky or

00:30:41: well they all equally had what about Tesla for example right right so I think Tesla is a good one to look at any of the Pure Play.

00:30:48: EB companies I think was one of the most interesting areas to look at early on because they weathered the storm.

00:30:54: Pretty well versus the other oems I think Toyota was the other one that's interesting because it looked like they were going.

00:31:01: Not be impacted they sort of survived the first wave of impact on production schedule shortfalls Etc that really started November and they just a month ago announced that note that finally caught up to them,

00:31:12: yeah they're projecting 40 percent reduction in production volumes over the next 12 months you know I just mark it others that crack the automotive industry,

00:31:21: estimate that there's upwards of 80 to 100 billion dollars of new purchase sales,

00:31:27: that is lost you know because the components shortage just in the first 12 to 18 months and it's unbelievable yeah so Richard and one of the things that there's obviously also very important is this Regional.

00:31:39: Concentration of

00:31:41: of the manufacturers of these of these chips right so that's right the big elephant in the room is as tsmc write this this Taiwanese chip manufacturer talk to me about where the supply chain is sort of concentrated very locally in the geopolitics that come into play I think that's a very important element as well here

00:31:57: it is it is and we've seen that the geopolitical tension and thinking around this like.

00:32:03: You know become more of a central topic for you know discussion.

00:32:10: Both the United States and in China but also just globally you know cross Germany across you know Japan Korea Etc like it's across the board so let's just let's just kind of have an overview here again crash course

00:32:23: you know about sixty percent of global semiconductor capacity is really sourced through.

00:32:29: What's called you know the founder of Fab providers

00:32:33: there's about 40 percent which is provided through what's called idms or integrated device manufacturers and that used to be the norm so what I mean by an eidm is a company like Texas Instruments or entail that has their own Foundry and Fab

00:32:46: capacity their own manufacturing capacity and in those foundries are,

00:32:51: kind of very purpose-built for managing the mix of you know components chips Etc that they're building.

00:32:59: Including kind of semi-custom chipsets for some customers or applications as well as very more general-purpose processors whether that's you know.

00:33:09: You know microcontrollers or you know integrated circuit

00:33:12: design you know IC chip sets that are generally used in different Downstream applications so when we look at tsmc they're the largest of the foundries and the majority now of

00:33:24: semiconductor companies early startup cetera are what we call fabulous which means they designed the chips they managed you know the commercial good or Market the brand Etc they have their own engineering teams but

00:33:37: but they basically don't manufacture the chipsets themselves they have both the foundries and then the you know the actual.

00:33:45: Fabrication process including.

00:33:48: And tests and assembly and packaging all go through third parties sometimes that's one lead Foundry sometimes it's a multiple you know key players in that chain and in the companies that I've you know.

00:34:00: Where'd that capacity is expanded outside of Taiwan where tsmc has about 80% of their names their employee base nearest and there

00:34:08: their total capacity is really in mainland China,

00:34:11: Korea and then in new parts of the United States for example so you do see a slow diversification of Fab and Foundry location capacity,

00:34:19: the main concentration points for both semiconductor equipment that's used for fabrication for these foundries as well as the founders themselves.

00:34:27: Dominantly in either Taiwan mainland China.

00:34:31: You know and then and then it kind of diversifies out from their traditional fams and foundries that have been located in.

00:34:38: Singapore the United States and in different parts of Europe.

00:34:43: But that's really where you know you see as high concentration and you see this emerging tension between particularly United States and the west and in China because what's also been happening in parallel but also.

00:34:56: Drove it it was an accelerator of this was that you know China you know has you know is really increasingly looked at.

00:35:03: Like many countries the need for their own chips that design capability their own you know access to semiconductor equipment Etc not just for commercial reasons right to support.

00:35:15: Chinese manufacturers or in the case of the United States us semiconductor companies or us manufacturers that rely on semiconductor but it's also you know challenge this idea of,

00:35:27: export control and you know how do we kind of protect our industry base how do we form new public-private partnership industrial policy strategies

00:35:36: in China that's kind of very normal with how they you know each five-year session they create a new Five-Year Plan sets up Broad.

00:35:44: Goals you know each other that's fine years.

00:35:48: In and really helps to structure investment and prioritization and in China just completed that Five-Year Plan.

00:35:55: Right before going into covid and one of the key announcements was that strategic interest that they have to develop and expand their overall semiconductor.

00:36:05: Designing and Manufacturing base.

00:36:09: To really protect and have their own you know kind of limit their dependencies on the outside and then Taiwan which is potentially under dispute in terms of its relationship to Mainland China Etc.

00:36:21: Falls right squarely in the middle of that conversation because.

00:36:25: Taiwan is outsized and it's important to the global Electronics value chain mostly because at EMC but also um see and it's been as Foundry capacity and Technical know-how and everything that goes with.

00:36:36: You know the expertise over 20 30 years is concentrated in Taiwan so you know that has really shined a spotlight on.

00:36:44: The geopolitical and fragility or concentration issues that.

00:36:49: You know we're exposed again you know and you saw you know gosh I remember reading reports and you know November and December.

00:36:57: For the first time ever you had US Government you know Commerce Department you know German you know Ministries you know Etc coming flying in to Taiwan to broker negotiations with.

00:37:10: Tsmc dad the gate for the needs of their specific companies and you know it's almost just crazy that you think a geopolitical pressure like that would actually.

00:37:20: Which shift anything you know what I mean overnight you know I think this is this is there's no easy serious not like people are hoarding chips Supply you know what I mean it's just the entire.

00:37:29: You know capacity of the entire industry is out you know I guess yeah really utilize yeah it's bad,

00:37:35: yeah you're a busy is an interesting interesting keyword here where is Europe and all of this I mean how dependent are we in Europe I think somewhere in the range of less than ten percent is actually produced here in Europe that's a that's a dramatic.

00:37:48: Dependency on on foreign foreign countries and foreign supplies like what's going to shut their what's going to happen there what's your prediction there well I mean I think there's different perspectives right I think one is.

00:38:02: You know you know the EU allows for the aggregation of some you know you know

00:38:10: National level interest any faction level Regional interest to be represented navigated for different forums you know what other that's in trade agreements whether that's in

00:38:20: you know again industrial policy sort of preference we saw that in Aerospace and defense,

00:38:26: very natural that you have that kind of clustering and support because if it's about National Regional security I think we're going to see more of that mindset shift into commercial semiconductor applications Upstream,

00:38:36: because again going back to this you know the setup conversation many of the same chipsets and components are used in automotive are also used in Aerospace and defense and used in in you know you know National Defense Agency

00:38:48: spending right in new design of either weapons or radar or monitoring systems Etc.

00:38:54: All is sharing from the same Upstream Supply pool so there's this this is double down since that we need to protect.

00:39:01: And have her either on Regional capacity.

00:39:04: Or somehow have new forms of long-term agreements where we can negotiate and manage and have visibility to that risk and those available Supply now up to this point I don't think those issues were really I mean there were on the radar screen of.

00:39:19: Everyone it's not like you know generally speaking.

00:39:25: Either you know Commerce Department's or ministries of trade or those within defense you know.

00:39:33: Were unaware of the dependency in Reliance on electronics but generally is very indirectly supported through you know investments in you know in higher education or you know supporting

00:39:45: you know Regional tech centers or

00:39:47: you know it's kind of indirect support right for the Rd stage and for you know developing a rich ecosystem for either design or for the application of these these these products now we're really looking for the first time at

00:40:00: where are the sources of Supply where are the locations of these have these foundries and Fabrication centers.

00:40:06: What risk is associated inherently with the loot those locations and it's not by the way just.

00:40:11: Geopolitical interests also whether I mean as a quick sidebar one of the biggest issues and watched last year that wasn't in the news was.

00:40:19: You know tsmc is access to water because the water is very intensively used in Foundry production fabrication.

00:40:26: And the the you know the this sort of stock piles of water aquifers you know Colo connects these major Foundry locations what ads was at its lowest point ever recorded because of two years of sort of.

00:40:39: Less than you know expected typhoon rainfall you know absorption and so luckily the typhoon season,

00:40:46: generate just enough water so I keep everything on track but that could have been the next part of the story was a drought in Taiwan just erupting the global supply chain regardless of

00:40:55: yeah that would have been another close call yeah yes another close call right in this whole story so anyways,

00:41:02: it is and on top of that they're sitting on top of a fault line right on a task like fault line so it they're all addressed there weren't fired right on the Ring of we saw that in Japan but the ring of fire is as you know Taiwan and his you know and.

00:41:15: Reciprocity easier on the same you know set of risk factors for.

00:41:19: Volcanic activity for earthquakes for underwater earthquakes and Etc so it's.

00:41:25: It's there's a lot of risk factors to look at here yeah just to go and back to our preferred automotive industry conversation here what are some of the major

00:41:34: learnings that the industry will take away from this crisis what are some of the major changes that you predict will happen as a consequence of what we've seen the last 18 months or so well you know you've seen some really interesting forward-looking announcements for those oems that are sharing what their plans are internally we have kind of the visibility some of those internal plans and evolution

00:41:52: but it's interesting just to see what's in the public domain right so you've got.

00:41:57: Ford spinning this into maybe this is the opportunity particularly in the US for the market to shift to,

00:42:04: you know build to order right where you just go into a dealer and you select what you want to order and the weight 5 weeks and get delivery shipment now that's much more common in Europe where you're familiar with but you know that's partly it was five weeks I would be okay but it's typically the much longer than right if you do it that way it's yeah.

00:42:20: But in the future they're hoping right that they get two more normal lead times and then they're saying like look why do we go back to giving allocation to dealers.

00:42:29: You know of a hundred cars a month maybe we do 15-20 right and then we just take the rest of that you know you know as individual orders now.

00:42:39: I don't think you know us consumer preference is going to make that model work but theoretically for the first time.

00:42:47: You seen the US Automotive Williams talked about how this is a viable strategy where for years and for many different pressures in the dealer Network Etc that was

00:42:56: considered Unthinkable right you know so that's interesting right GM just coming out recently talking about how you know they're rethinking how they manage

00:43:05: you know long-term Supply planning you know component sourcing their design teams and they're and they're really cheap because their silos everywhere in these oems around how those teams work together

00:43:15: both by geography by Department you know what I mean etcetera and and they're very typically bureaucratic and slow-moving and so

00:43:23: they've got to transform themselves internally and really rethink okay where is the internal collaboration and where's the shared intelligence need to happen so if we see an issue like this emerging.

00:43:33: How do we get out of it.

00:43:34: How do we reduce our response time from leaks or months to dates right and that's a really interesting goal and perspective and it's coming very top down from sea level you know poor level discussions Etc because literally they've had a write off.

00:43:49: You know x billion of US dollars or Euros over the last few months right I mean nothing more could be more important right now but I think structurally that's where we're going to see the more interesting like shift.

00:43:58: Overtime is this you know movement away from just in time and Justin's sequence is always good all the time right I think there's this notion that you need to sort of,

00:44:08: segment understand you know how many internal supply chains do you actually have it's not one monolithic supply chain right the lead time the,

00:44:15: just in sequence for painting for you know loading transmission and an engine you know on the assembly line that's great right and you can get a stay ahead of it but for components,

00:44:25: it's different story right so how do we organize ourselves how do we have shared visibility.

00:44:30: Commercial agreement control and this is typically called in procurement and sourcing a you know a notion of directed by where I'm telling you.

00:44:38: Buy from commercially by from this semiconductor supplier but I'm going to negotiate a long-term agreement with that supplier and Dupree negotiate the price or cost versus a kind of a turnkey.

00:44:49: I just want visibility of what you're buying on my behalf and what the updated lead times are because it impacts me even though you need to.

00:44:57: Buy it own it and take the margin gain and risk associated with cost associated with that we're moving into a model where.

00:45:04: Increasingly we need shared visibility around design and the design chain and then link that into the shared visibility of what's happening in sourcing and supply chain particularly managing you know the balance between cost.

00:45:16: Quality and risk you know in the economic incentives around you know how do you.

00:45:23: Judge success of a procurement and sourcing team or how do you judge success of a new design team needs to come into alignment and I found it that's.

00:45:32: You know hard work and so many companies because there's so much inertia to not roll down and look at those changes and Implement them there's a tremendous amount of change management particularly.

00:45:42: In a lot of Automotive companies that are very stable and mature in their business processes you know sometimes these groups and organizations have been in place for.

00:45:49: 20 30 years right so how do you rethink all of this and I think that that's.

00:45:54: Really an interesting challenge but opportunity for a lot of the leaders in automotive oems themselves and for my final comment would be you know.

00:46:02: What we're doing at supplyframe is an example I think of what is really the keys to the Future and it builds on.

00:46:08: What we talked about earlier which is this wave of innovation that's happening around the near-term supply chain the final mile right the visibility of everything that's,

00:46:17: from order to you know shipment to intermediate receipt you do an inventory right we've got a lot better about you know.

00:46:26: Linking together you know networks of logistics 3pls providers Etc and then linking that to my you know my order systems and my inventory supply chain planning systems for just-in-time or VMI Etc these models,

00:46:40: we've made great progress there the next big wave right you know that links to a lot of the same you know thinking right networks and it's not about my Enterprise data it's about.

00:46:49: Sharing visibility and control across these different business partners that next wave is really going to be about,

00:46:55: shared visibility across contract manufacturers are tier one suppliers the an external design teams all working with the single source of Truth around what's the change in Risk what's the you know the the longer lead time.

00:47:07: Visibility that we have now to.

00:47:10: Supply capacity cost drivers Etc in so that we're we're synchronizing trying to respond to that as much as possible because there is this opportunity.

00:47:20: To get smarter faster and to reduce the bullwhip effect of just the demand propagation signal challenge just creating massive variability in Supply lead times in general we've got to get better and collapse that variability.

00:47:34: As we work through the structural impact of what's happening right now there's just very limited degrees of freedom today.

00:47:40: Put over the next two to three years that will free up yeah super interesting so maybe as a last point I would love to get your predictions for what's going to unfold first across the next 12 months I know it's difficult predictions always

00:47:53: ride with them and certainty that's just the nature of the Beast so just your predictions for the for the next year hold this whole thing with unfold and I'll will solve itself.

00:48:03: And then maybe also like a broader Outlook maybe for the decade even I think that's a great question Morrison and as you say it's always there's no crystal ball it's always very difficult to make these sort of for looking prediction.

00:48:14: Bye.

00:48:15: The one area I can make some confidence is that we actually are tracking what the true long-term lead times are because of the 26 weeks 235 you know 40-week lead times on.

00:48:27: Yeah I'm just generally new chips that you know are going to be ordered in going through the Fab you know process all the way through right the value chain.

00:48:34: We actually can see that the constraints are going to extend into at least the first half of 2023.

00:48:42: But the pattern that were seen yeah and it's much longer I think the market is just catching up to that reality right now.

00:48:50: You know I just mark it you know.

00:48:54: Alex Partners other analysts that cover the automotive industry just recently have updated their forecast for.

00:49:00: You know the overall volume of vehicle Productions you know 2022 kind of Outlook in 2023.

00:49:08: And they revised everything down and the total opportunity cost of lost sales is now I've been estimated as gone from a hundred billion to over 200 billion and that's just an automotive right it's not including consumer electronics and all these other related Industries so I think that.

00:49:23: The overall Outlook is the this is not going away anytime soon.

00:49:28: This is a broad-ranging highly interconnected impacting multiple Industries kind of effect that we're going to see,

00:49:35: it kind of a wave approach so it's not like a one-time event but then just gets resolved it's going to kind of.

00:49:41: You know have these sort of you know strange it'll shift in terms of what key sub Commodities are being impacted,

00:49:48: it'll shift in terms of what Industries or subassemblies or key suppliers are being impacted.

00:49:54: And then it'll have you know it it's just the fragility in the market is then allowing for other factors now to make a big difference so.

00:50:02: You know whether you know looking at the energy crisis in China for example you know understand the next typhoon season in Taiwan that might impact tsmc you know the overall Logistics carrier.

00:50:13: You know Network that you know ocean you know Port congestion all these issues.

00:50:19: Will stabilize but the compounding of those different factors makes it also really difficult to you know again crystal ball time you know really predict I think the the takeaways are interesting I think this is a unique moment I don't think this is just another.

00:50:34: Send I you know what I mean impact you know where we just sort of had to recover and then you know we're good again you know this is something.

00:50:42: There's a rebalancing of thinking around the trade-off between.

00:50:46: You know just in time or you know BMI pull based strategies that you know are balancing the lowest level of inventory possible in a network.

00:50:54: To a new strategy that says hey let's rethink where do we have strategic buffers you know how do we have long-term agreements with key suppliers.

00:51:02: How can we pull him in Tori and reduce the risk you know you know and have that flexibility to kind of decide what key components are key.

00:51:11: You know key elements of Supply me to be pooled and shift that in and out you know what I mean as a strategic before I think that flexibility in the supply chain is going to be really important and that has interesting implications for any Logistics and transportation sort of.

00:51:24: You just apply to network design professionals and teams you know there really is a new openness to like take a fresh look at the network.

00:51:32: You know relook at the trade-off between,

00:51:35: you know where you're pulling them and Tory what you know multimode sort of strategies do you have it's not about lowest-cost anymore now it's really interesting Dynamic we have to really balance,

00:51:44: cost risk and lead time,

00:51:46: dynamically and you know any assumptions around stable lead times and Key Supply markets is kind of gone out the window so any planning system,

00:51:55: that has static League times you know absolutely needs to be you know updated and reviewed more dynamically you know and I think that.

00:52:04: This bouncing of you know looking at budgets for like sort of expedite costs you know for Park shortage you know sort of expedite shipments,

00:52:11: is not like this sort of exceptional thing that we try to minimize it's now becoming a primary mode of inbound fulfillment,

00:52:19: and so that actually creates a lot of flexibility where teams have been under a lot of pressure from cost optimization perspectives to now actually look at.

00:52:28: Flexibility and Agility and their transportation Logistics network not just.

00:52:33: You know try to move everything from here to Ocean and call it good you know that's just not going to work in this market so I think I think those are the implications

00:52:40: Richard awesome conversation I'm so glad I invited you for this crash course and everything semiconductor shortage related II know I made the right pick fantastic thanks for that crash course I am very much appreciate I hope audience does too

00:52:53: thank you so much for the opportunity it's a critical issue it's fascinating it's challenging you know I think we just need to keep,

00:53:02: get out sharing insights and new thinking because you know it's this is not business as usual at all you know across across the world and you know across every function within supply chain so if that think it's all about.

00:53:15: You know taking our best thinking and challenging our assumptions and trying to get more agile more.

00:53:22: Yeah fingers crossed yeah Richard thanks again for being on the program talk to you next time thank you so much for us all right Dad was the logistics tribe podcast episode with Richard Barnett from supplyframe

00:53:33: hope you enjoyed this crash course in the car and semiconductor shortage.

00:53:38: If so please subscribe to the podcast so you don't miss any of the future episodes I'm boss felgendreher until.

00:53:44: Music.

About this podcast

Boris Felgendreher, Dana von der Heide and Marco Prüglmeier invite you to listen to The Logistics Tribe, a weekly podcast about the world of global logistics and supply chain management.

You can follow the hosts on Linkedin:

Boris Felgendreher:

Dana von der Heide:

Marco Prüglmeier:

by Boris Felgendreher


Follow us