WEBVTT - Why Is There a Semiconductor Shortage? 0:00:01.920 --> 0:00:06.320 Welcome to brain Stuff production of I Heart Radio. Hey 0:00:06.400 --> 0:00:10.440 brain Stuff, Lauren Boga Bam Here. Whether you've gone shopping 0:00:10.520 --> 0:00:13.840 lately for a new car, a washing machine, a game console, 0:00:14.000 --> 0:00:17.320 or any number of other items, you've probably discovered that 0:00:17.360 --> 0:00:19.919 the stuff you want is way more expensive than it 0:00:20.000 --> 0:00:23.840 used to be and increasingly hard to find. The price 0:00:23.880 --> 0:00:27.320 tags on some high end TVs, for example, have risen 0:00:27.440 --> 0:00:31.840 nearly thirty since this time last year. New cars are 0:00:31.840 --> 0:00:34.680 in such short supply that the cost of used vehicles 0:00:34.720 --> 0:00:38.040 is skyrocketing, to the extent that the price of a Saturn, 0:00:38.240 --> 0:00:40.680 a brand that's been defunct for more than a decade, 0:00:41.000 --> 0:00:43.559 is up by more than twenty six over last year. 0:00:44.960 --> 0:00:48.239 So what's up with that? All of these products do 0:00:48.360 --> 0:00:52.680 have something in common in that they contain semiconductors, also 0:00:52.720 --> 0:00:56.640 referred to as microchips or integrated circuits. These have become 0:00:56.720 --> 0:00:59.800 a vital component in this smart gadgetry of our modern 0:00:59.840 --> 0:01:03.440 war old, enabling the myriad miracles we expect our possessions 0:01:03.440 --> 0:01:07.280 to routinely perform and right now, as a result of 0:01:07.280 --> 0:01:11.840 COVID nineteen's disruptive impact upon semiconductor plants in Asia and 0:01:12.000 --> 0:01:16.880 pandemic induced distortions of consumer demand that United States manufacturers 0:01:16.880 --> 0:01:21.920 off guard. There aren't enough semiconductors to go around, and 0:01:22.160 --> 0:01:26.520 the crisis is likely to get worse before it gets better. Gartner, 0:01:26.640 --> 0:01:30.399 the global market research and advisory firm, recently predicted that 0:01:30.440 --> 0:01:33.640 the worldwide semiconductor shortage will persist for the rest of 0:01:33.680 --> 0:01:36.600 this year and that normal supply levels won't be available 0:01:36.680 --> 0:01:41.920 until the second quarter. For the article this episode is 0:01:41.959 --> 0:01:45.319 based on How Stuff Works, spoke with Rob Handfield. He's 0:01:45.360 --> 0:01:48.720 the Bank of America University Distinguished Professor of Supply Chain 0:01:48.760 --> 0:01:52.280 Management at North Carolina State University and director of the 0:01:52.280 --> 0:01:55.920 school's Supply Chain Resource Cooperative, which studies and works to 0:01:55.960 --> 0:02:00.000 improve the flow of products in various industries. He explained 0:02:00.160 --> 0:02:03.800 that the scope of this applies to quote, dishwashers, thermostats, 0:02:03.880 --> 0:02:08.400 vacuum cleaners, coffeemakers, and cars. Everything has electronics in it. 0:02:09.360 --> 0:02:11.799 The most obvious cause of the shortage has been the 0:02:11.840 --> 0:02:14.359 disruption caused over the past year and a half by 0:02:14.440 --> 0:02:19.160 COVID nineteen. Three Quarters of the world semiconductor making capacity 0:02:19.200 --> 0:02:22.800 is in East Asia, and early on the pandemic forced 0:02:22.800 --> 0:02:26.800 a few countries to temporarily shut down semiconductor manufacturing plants 0:02:26.840 --> 0:02:30.720 along with other businesses, though others, such as China deemed 0:02:30.760 --> 0:02:35.840 semiconductor industry labor forces to be essential workers. International shipping 0:02:35.840 --> 0:02:40.280 of electronics also has been hindered by the pandemic, and recently, 0:02:40.560 --> 0:02:43.880 a new surge in COVID nineteen infections in Taiwan, one 0:02:43.919 --> 0:02:47.160 of the world's key sources of semiconductors, has threatened to 0:02:47.200 --> 0:02:49.840 interfere with production at a time when it's needed more 0:02:49.880 --> 0:02:54.600 than ever. The initial shortage of semiconductors occurred at a 0:02:54.639 --> 0:02:58.400 time when pandemic isolation was forcing millions to stay at 0:02:58.400 --> 0:03:02.280 home and work and play a remotely that stimulated the 0:03:02.320 --> 0:03:06.640 consumer craving for electronics. Expecting a slump in the market, 0:03:06.880 --> 0:03:13.160 semiconductor manufacturers didn't invest in additional capacity. When instead demand surged, 0:03:13.400 --> 0:03:18.000 the chip fabrication foundries called fabs and industry LINGO weren't 0:03:18.000 --> 0:03:21.520 ready to meet it. As a result, the time needed 0:03:21.520 --> 0:03:23.919 to fill orders at some factories has gone from the 0:03:24.040 --> 0:03:27.040 usual twelve weeks to twenty to twenty two weeks. According 0:03:27.120 --> 0:03:30.280 to Handfield, he said, when you order them, you won't 0:03:30.280 --> 0:03:35.560 see them for almost six months. Meanwhile, manufacturers who need 0:03:35.600 --> 0:03:40.080 semiconductors as components miscalculated as well. Some of the biggest 0:03:40.120 --> 0:03:43.640 pain has been felt in the automotive sector. Today's cars 0:03:43.640 --> 0:03:47.240 and SUVs depend upon computers to regulate everything from the 0:03:47.360 --> 0:03:50.280 fuel going into the cylinders to the brakes and steering, 0:03:50.800 --> 0:03:53.440 and according to a recent New York Times article, a 0:03:53.520 --> 0:03:57.120 high end vehicle can contain three thousand or more microchips. 0:03:58.520 --> 0:04:01.280 How stuff Works also spoke by email with Brent Are 0:04:01.440 --> 0:04:04.640 Moritt's associate professor of supply chain Management at Penn State 0:04:04.720 --> 0:04:08.560 University's Smell School of Business. He explained that when the 0:04:08.600 --> 0:04:13.880 pandemic hit last spring, most automakers reduced their forecasts. Instead, 0:04:14.000 --> 0:04:17.440 Morris said, demand for cars and trucks is higher than expected, 0:04:17.720 --> 0:04:20.800 a many people who relied on public transport or ride 0:04:20.800 --> 0:04:25.560 sharing want their own cars. A fire this spring at 0:04:25.600 --> 0:04:28.960 a major Japanese supplier of chips and electronic modules for 0:04:29.080 --> 0:04:34.000 several major automakers helped exacerbate the auto industry shortage, though 0:04:34.040 --> 0:04:38.440 the plant is now nearing full production again, and fixing 0:04:38.440 --> 0:04:43.039 the problem isn't going to be simple or easy. Manufacturing semiconductors, 0:04:43.120 --> 0:04:46.400 which can involve etching as many as twenty patterned layers 0:04:46.440 --> 0:04:49.880 of circuitry onto a tiny piece of silicon is a 0:04:49.920 --> 0:04:54.040 complex process, and the factories needed to perform these tasks 0:04:54.160 --> 0:04:58.240 can take two to three years to build. The U 0:04:58.320 --> 0:05:01.279 S Senate recently passed a build designed to bolster the 0:05:01.400 --> 0:05:04.520 U S tech sector's ability to compete with China that 0:05:04.560 --> 0:05:08.280 would provide fifty two billion dollars in subsidies to domestic 0:05:08.320 --> 0:05:12.640 semiconductor manufacturers for research and development as well as manufacturing. 0:05:13.480 --> 0:05:16.279 The legislation, which still must be voted upon by the House, 0:05:16.600 --> 0:05:19.719 would provide a boost to US chip making, which today 0:05:19.760 --> 0:05:22.840 only accounts for twelve percent of the global capacity, down 0:05:22.880 --> 0:05:28.120 from sent back in. Building new fabs here could help 0:05:28.200 --> 0:05:31.839 provide a bigger supply of US made semiconductors, but it 0:05:31.880 --> 0:05:37.000 wouldn't have much immediate impact upon today's shortage. A Handfield explained, 0:05:37.360 --> 0:05:40.560 there's a lot of discussion around bringing more chip manufacturing 0:05:40.600 --> 0:05:42.720 back to the US, but it's not as if you 0:05:42.760 --> 0:05:47.120 can just build a factory and start making chips. You see, 0:05:47.400 --> 0:05:52.480 semiconductor manufacturers required their own supply chains as well. Handfield 0:05:52.520 --> 0:05:56.400 cites the example of one large Asian manufacturer having two thousand, 0:05:56.640 --> 0:06:00.760 five hundred different suppliers. A new of would need to 0:06:00.800 --> 0:06:05.320 create its own supply chain. Another problem that complicates the 0:06:05.400 --> 0:06:10.240 semiconductor shortage is that many uses requires specialized chips, which 0:06:10.279 --> 0:06:13.400 makes it difficult to adjust manufacturing to meet surges in 0:06:13.480 --> 0:06:17.440 demand for particular products. The Handfield says that one possible 0:06:17.440 --> 0:06:20.839 answer to that problem is the development of customizable chips 0:06:21.080 --> 0:06:24.040 built from components that could be assembled in different ways, 0:06:24.600 --> 0:06:30.440 hasn't get materialized to any level. Meanwhile, as the pandemic 0:06:30.480 --> 0:06:33.480 recedes in the United States due to vaccines, the demand 0:06:33.520 --> 0:06:37.040 for semiconductors and the resulting shortage may grow even more 0:06:37.120 --> 0:06:41.479 dire More, It's said the combination of stimulus funds and 0:06:41.520 --> 0:06:43.880 the fact that people have not been spending money on 0:06:43.920 --> 0:06:47.600 other things like vacations, air travel, restaurant meals has seen 0:06:47.640 --> 0:06:50.480 people want to spend on consumer goods that use chips 0:06:50.760 --> 0:06:53.880 at things like new computers, monitors, tablets, and all manner 0:06:53.920 --> 0:06:57.479 of consumer electronics. This is putting additional strain on the 0:06:57.480 --> 0:07:02.080 supply chain and end the industries that use semi conductors 0:07:02.160 --> 0:07:04.880 are only growing as more of our tech becomes smarter. 0:07:06.360 --> 0:07:09.800 But on the positive side, more It's expects automakers and 0:07:09.840 --> 0:07:13.280 other manufacturers to learn from the crisis and learn how 0:07:13.320 --> 0:07:18.040 to avoid future instances. He said, probably the largest innovation 0:07:18.080 --> 0:07:21.200 that can help right now is building supply chain resiliency. 0:07:21.760 --> 0:07:25.440 The auto industry was famous for reducing inventory, yet in 0:07:25.480 --> 0:07:29.320 the circumstance, the drive for efficiency and low inventories has 0:07:29.360 --> 0:07:33.160 resulted in shortages. Of course, inventory is not the only 0:07:33.160 --> 0:07:37.360 way to build resiliency, yet having spare capacity, flexibility, and 0:07:37.400 --> 0:07:41.600 good supplier relationships can help mitigate the future shortages. I 0:07:41.680 --> 0:07:44.680 expect that the auto industry will be treating semi conductors 0:07:44.800 --> 0:07:48.760 more strategically rather than as a commodity, yet that mindset 0:07:48.960 --> 0:07:56.560 is hard to break to. Bday's episode is based on 0:07:56.600 --> 0:08:00.000 the article A perfect storm of worldwide catastrophes is called 0:08:00.000 --> 0:08:03.239 Singing the Global Semiconductor Shortage on how stuff works dot com, 0:08:03.240 --> 0:08:06.160 written by Patrick J. Keiger. Brain Stuff is production of 0:08:06.160 --> 0:08:08.320 by Heart Radio in partnership with how stuff works dot 0:08:08.320 --> 0:08:11.480 Com and is produced by Tyler Klang. Four more podcasts 0:08:11.560 --> 0:08:14.680 my Heart Radio, visit the heart Radio app, Apple Podcasts, 0:08:14.760 --> 0:08:16.560 or wherever you listen to your favorite shows.