24 Aug How a Contract Manufacturer Can Help With the Semiconductor Shortage
Whether you manufacture cell phones or calculators, the value of a consistent semiconductor supply chain cannot be denied. Today, the world moves forward with the use of chips in the manufacturing of tech. As modern-day living further advances towards a state of IT dependence, the demand for semiconductors will not drop any time soon.
While a spike in demand may sound like an entrepreneur’s dream, we need to look at the current circumstances. Semiconductor demand remains high, but the same is not true for semiconductor supply. Geopolitical tensions, as well as the COVID-19 pandemic, have dealt semiconductor supply a damaging salvo — one impactful enough to cause a shortage.
There is a solution — hiring a contract manufacturer. By hiring a contract manufacturer, you can ensure a steady supply of semiconductors tailored to any printed circuit board or PCB assembly need.
Read on to learn more about how a contract manufacturer can help you weather the storm that is the semiconductor shortage of 2021.
Why Is There a Semiconductor Shortage in 2021?
2020 and 2021 have been characterized by an uptick in semiconductor demand. Concurrent and corollary to this demand is the rise in production in the electronics industry. From smartphones to computers, everything digital requires semiconductors in their printed circuit board assembly (PCBA) processes.
The demand has brought the inability to keep up with semiconductor demand to the fore. While the demand has been addressed numerous times in the past, 2020 and 2021 have proven challenging.
Experts point to these two reasons behind 2021’s dwindling semiconductor supply chain:
Tensions Between the United States and China
Of late, tensions have risen between the United States and China over a variety of issues. These issues have built up over the last decade, such as allegations of intellectual property theft during the Trump administration.
With numerous sanctions imposed by the United States, China has retaliated by issuing a ban on American-made technological raw materials — including semiconductors.
To date, the United States and China are two of the largest semiconductor manufacturers and exporters in the world. With the two nations locking economic horns, the semiconductor supply chain has been dramatically disrupted since 2020. The current Biden administration and Beijing push for their respective “semiconductor independence” policies to this very day.
COVID-19
The COVID-19 pandemic has opened the floodgates to a plethora of problems that affect the semiconductor supply chain. The pandemic has caused numerous manufacturing plants to shut down, halting semiconductor production in many parts of the world.
The pandemic has also prompted the creation of healthcare goods — at the expense of materials for semiconductor production. For example, the race for the COVID-19 vaccine has led to a spike in the demand for silicone. Silicone is a vital component in the production of microchips.
Granted, the dwindling supply of silicone is more of a problem for the production side of things. Nonetheless, it creates obstacles for any EMS provider to provide a consistent semiconductor supply chain.
Current Challenges to the Semiconductor Supply Chain
We will not be experiencing a chip and semiconductor surplus any time soon. According to numerous sources, the drought in supply might last until 2023.
Semiconductor supply continues to be a problem for all industries involved in PCB assembly. The affected industries include:
- The automotive industry
- The electronics industry
- The agricultural industry
- The electronics industry
- The IT and telecommunications industry
The above-mentioned pivotal sectors experience an insufficiency in semiconductor supply. Although more manufacturers are leaving their business cards at the doorstep of these industries, challenges remain.
Movement Restrictions
An integral part of any supply chain is logistics and shipping. Under normal circumstances, there would be little to no hindrances of semiconductors making it from point A to point B. Unfortunately, COVID-19 has engendered a mountain of obstacles for shipping.
To prevent the spread of past COVID-19 variants and newer ones, governments have tightened border controls. Nations have resorted to stringent border controls at various ports of entry, which has caused headaches for many logistics and EMS companies trying to stay afloat in today’s pandemic economy.
Semiconductor Stockpiling
Due to the hindered circulation of semiconductors, the world’s foremost semiconductor manufacturers are stockpiling to the point of hoarding. No two countries exemplify this more than China and the United States.
A trade war between two superpowers creates a deleterious state of affairs with movement restrictions. These two can and have combined to create a status quo wherein countries preserve whatever semiconductor supply they have.
Like a recession, the lack of circulation ironically causes more companies to have fewer semiconductors at hand. Sourcing becomes even more challenging, as a result.
Unreliable Semiconductor Supply and Logistics
The challenges engendered by a semiconductor shortage do not only manifest as a difficulty to get hold of supply. The unreliability of the semiconductor supply chain has also led to the prevalence of counterfeit semiconductors and semiconductor components.
Because of supply scarcity, many companies involved in printed circuit board assembly are in a mad scramble to secure semiconductors. Unfortunately, many suppliers have taken advantage of the clamor, distributing subpar semiconductors and semiconductor components.
This adds to the already pressing supply problem as more counterfeit semiconductors make their way to the larger global market.
How Can a Contract Manufacturer Help?
Contract manufacturing is a way for businesses to outsource certain processes integral to their business. One process that is outsourced to a contract manufacturer is the acquisition of certain components.
For many companies in the telecommunications and technology industry, contract manufacturing and EMS providers are the go-to solution for PCB supplies and components.
Here are some ways an EMS service as a contract manufacturer can help you ensure a steady and reliable semiconductor supply chain:
1. A Contract Manufacturer Allows You To Save on Excessive Sourcing Services
As one source puts it, semiconductor manufacturing is a complicated process. Slow supply replenishment motivates some companies to act as “middlemen.” These companies create a price monopoly to pay for their sourcing. In most cases, signing for a service with these companies can cost you a lot — especially with semiconductors.
A reliable contract manufacturer will have a network of manufacturing hubs on speed dial, so to speak. Hence, contract manufacturers can guide you through semiconductor procurement and at a fixed cost with no middlemen.
Negotiate a fixed cost with a contract manufacturer and you will also cover shipment scheduling and logistics.
2. Hiring a Contract Manufacturer Results in More Time-Efficiency in Supply Replenishment
Going with just any supplier can cost you more than money. With numerous technical obstacles required for a reliable semiconductor supply, choosing a non-EMS specialist can cost you time.
Contract manufacturers who are pros in EMS providing already have streamlined processes for supply chain and logistics. Their processes can shave a few weeks off your expected date.
In short, you can receive a steady supply of anything (like semiconductors) with the help of a contract manufacturer. And, you can expect promptness to go along with the process, saving a lot of time.
3. Contract Manufacturers Take the Guesswork out of Semiconductor Procurement
Ensuring that you maintain your semiconductor supply chain is not a straightforward process. It is time-consuming, expensive, and labor-intensive. All of these adjectives speak volumes of what goes into closing a shipment deal.
The technical knowledge required for semiconductor logistics may be something your business lacks. Equipping your employees with it can mean additional training, which can be expensive. There are also financial risks to seeking supplies yourself or from untrustworthy sources.
Training also does not always guarantee expertise — especially during the initial phases of your business operations.
A contract manufacturer well-versed in semiconductor sourcing can help. They can assist you by taking on all responsibilities associated with supply procurement. One with comprehensive coverage can also take over logistics and quality control.
By hiring a contract manufacturer, you can rest easy knowing that another company is dealing with the complexities of seeking your next semiconductor supplier.
4. EMS Providers Can Make Delays a Thing of the Past
As mentioned earlier, the semiconductor shortage can be attributed to cross-border controls. This results in a scenario wherein moving goods can be troublesome. That said, semiconductor supply, if it is imported, can be fraught with delays.
In addition, calling upon companies located overseas might add more gasoline to the fire. For years, American companies have looked to China and India for their semiconductor supply. With things being the way they are now, one of two outcomes are foreseeable:
- You get your supply following a long waiting period due to border clearances and regulations.
- You give up due to the bureaucracy associated with importing semiconductors from China.
EMS providers or contract manufacturers can navigate alternative channels for supply procurement. They operate based on a waiting time or deadline you have set.
The network of supply sources and manufacturing hubs EMS providers have do one thing. It shortens the distance between the source of semiconductors and your company. For this reason, you can expect little to no delays with a contract manufacturer.
5. You Can Ensure the Quality of Your Semiconductors
Counterfeit and subpar semiconductors have made their way onto the market, much to the chagrin of legitimate and credible manufacturers and consumers. Fake or otherwise, semiconductor volume can take as long as six months to achieve. Hence, it is crucial to ensure that the time spent waiting was worth it.
Contract manufacturers not only acquire the desired supply of semiconductors. They also ensure that it makes it to you and that each one is of high quality.
6. You can Tailor Your Transactions
The term “contract” in “contract manufacturer” implies a mutual agreement between the manufacturer and your business. These agreements can involve the price and specifications of your semiconductors.
Not all semiconductors are the same. A contract manufacturer can ensure that you get the one that suits the needs of your business and clients.
Final Thoughts: Hire a Contract Manufacturer During This Semiconductor Drought in 2021
The pandemic and geopolitical tensions between the United States and China have impacted businesses on many fronts. One of the results has been the instability in semiconductor supply. The instability in semiconductor supply could last for a long time, especially with no end in sight for the two aforementioned issues.
PMJ Technologies can help your business ensure consistent supply. We at PMJ Technologies offer:
We offer these and more. We guarantee speedy turnaround times and customized service — all at competitive rates.
Feel free to reach out to us for all your electronics business needs!
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