Discussion Highlights: Mitigating Semiconductor Supply Shortages

May 5, 2022 Strategic Cost Reduction Roundtable

The roundtable theme was actions companies are taking to deal with ongoing chip shortages. Prior to the roundtable, APD’s Jeff Miller gave a short presentation sharing what one company is doing to proactively identify alternate components, track component end-of-life, and identify country of origin for key components.

Highlights of the roundtable discussion are summarized below.

• Sr. Director of Controls Sourcing for a home appliance manufacturer shared that purchasing partners with the Technology and Engineering teams to identify alternative components. They also shared they are working with key suppliers to develop supply plans, rewarding suppliers who will prioritize their demand and dual-sourcing suppliers who take a transactional approach.

• Director of Electronics Strategic Sourcing for cordless devices shared that they work closely with their Supply Chain and Engineering teams to identify and prioritize bottlenecks. They’ve secured long-term contracts with component manufacturers, and sometimes have to agree to price and volume commitments that they normally wouldn’t do. They also shared that they update business leadership on the supply situation on a regular cadence so they can better manage customer relationships.

• Director of Global Electronics Procurement for a sensor supplier shared he have set up “control towers” to identify the most critical/urgent supply situations and conduct weekly meeting with key semiconductor suppliers (sometimes involving key customers and distributors in the calls). They use a service to identify suitable alternative components on the grey market, from both certified and non-certified brokers. Customers are involved in the decision and bear the costs. They have established a vetting process to ensure components from non-certified brokers are acceptable. They also shared that their engineering group is able to work around-the-clock – with team in North America, Europe, and Asia – to implement design changes for alternative components. They acknowledged that redesign is a last step, and only in their non-automotive business as approvals from automotive customers are cumbersome.

• Sr. Semiconductor Commodity Manager for a home appliance manufacturer shared that they are making a push to improve relationships with semiconductor suppliers to ensure allocation. They also shared that they have improved collaboration with Engineering on redesigns due to the shortages and have seen improvements in efficiency, with the redesign timelines now at 3-9 months.

• Vice President of Purchasing for a building products supplier shared that their focus has been on building inventory of components, strategically shifting capital to fund inventory and committing to purchasing components beyond customer contracts to ensure supply. They have recently built up their engineering organization to be able to consider alternative components, and are planning to strengthen their end-of-life programs. They also shared that because their products end up in safety-related applications, they have to carefully validate components purchased on the grey market.