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May 24, 2021

Don’t get caught out by chip supply chain issues

By GlobalData Technology

The headlines in the past 12-16 months have been dominated by supply chain issues, either due to the Covid-19 pandemic, natural disaster, or in the case of the recent Colonial Pipeline shutdown in the southeastern United States, bad actors.

But there is another supply chain issue that is going on and will likely not be resolved this calendar year: chip shortages. There is a constraint in silicon supplies that vendors use to make products. In the IT sector specifically, it is leading to vendors placing orders for chips an unprecedented 12-20 months in advance. In the salad days before the Covid-19 pandemic, vendor silicon order lead times were normally less than 90 days.

Chip supply shortage

There is no singular cause for the chip shortage, but Covid-19 is clearly one of the bigger factors. Other factors are rising demand due to technologies such as 5G, geo-political tensions between China and the United States, and problems at Intel with its 7mm process. Intel’s issue caused competitors to go to AMD and put more pressure on its foundry partner, TSMC. There are other factors, but these are the main ones.

Enterprise IT vendors have done a reasonable job across the board to minimize delays, especially as 2021 wears on but corporate IT buyers and planners, many of whom are in the middle of digital transformation should be prepared for more possible delays. Global events and even a spate of bad storms could worsen the fragile silicon supply chains.

Contingency plans need to be in place now

Nobody argues that digital business transformations aren’t necessary for businesses to remain competitive. Many of these projects are underway already, started during the depths of the lockdown. More changes are coming. IT project managers and buyers should revisit these plans, not to make changes today, but in order to create contingency plans should the worldwide supply chain for IT equipment falter again. It should be stressed repeatedly that right now, most vendors are not having significant delays in fulfilling orders.

But that could change quickly. Make sure you are having realistic and honest conversations with your vendors and IT suppliers. Make sure they are keeping on top of possible delays and communicating those back to you. Furthermore, shortages have been causing prices to rise, something every business will have to deal with when planning. The time spent creating, at minimum, directional contingency plans for possible delays will make it far easier to react and speed recovery time.

Additionally, while the chip shortage is bad for the IT sector, shortages in other places such as construction materials, automobiles, trucks and other materials can also impact IT plans. Remodeling and building changes can either experience rises in costs due to lumber prices or outright delays. Worldwide supply chains are struggling to keep up with the resurgent demand in countries that have managed to secure and deploy the Covid-19 vaccine en masse.