production of central processing units, gloved hand holds a cpu. Global chip shortage concept
It has been a challenging few years for semiconductor manufacturers. Many industries served by semiconductor companies have not been able to get the chips they needed and have suffered huge financial losses. In 2021 for example, the global microchip shortage led to losses of more than $200 billion in the automotive industry. Eleven million fewer vehicles were produced; manufacturing plants were shuttered.
Qualcomm
Qualcomm (NASDAQ
Nevertheless, COVID-19 did have a significant impact. The pandemic fundamentally changed the way the world connects, computes, and communicates. For companies like Qualcomm, COVID did help to fuel unprecedented demand for the semiconductor chips they provide to power the technology we’ve all come to rely on. Brent Wilson, the senior vice president of global supply chain at Qualcomm, believes that “concurrent” supply chain planning is required for the company to navigate uncertainty and expand into new markets of automotive, computing, and connective intelligent edge.
Concurrent planning links execution plans, the plan for what will be manufactured in the next few days or weeks, to the longer-term sales & operations plan (S&OP). S&OP, also called integrated business planning, matches projected demand to what a company can feasibly make over the coming months. As new short-term plans are created to deal with inevitable changes in demand or supply, the linkage to the revenue and profitability goals based on the initial S&OP plan becomes instantly visible. Whereas S&OP plans are typically created once a month, agile companies adjust what is made in their factories on a daily or weekly basis based on shifts in demand and supply.
No long-term demand plan is ever perfect. In typical times, these shifts between what a company thought they needed to make and what they really needed to make are akin to changing water levels caused by the tide; during COVID the shifts were more like tidal waves.
In addition to the increasing demand the company has struggled to meet, the company has been rapidly expanding to new markets, such as IoT. The question Mr. Wilson posed to an audience attending the Kinaxis Kinexions user event in May was how do you connect everything and give everything the intelligence it needs to make near-term decisions? That’s not exactly an easy question to answer. For Qualcomm, it is all about innovation.
Qualcomm uses the Kinaxis Rapid Response solution for concurrent supply chain planning. The solution was implemented in 2012 to deliver a comprehensive sales and operations planning solution that was able to move into execution with high integrity. Within the semiconductor industry, especially as the Covid-19 pandemic hit, execution is key.
Mr. Wilson pointed out that Covid created small interruptions for many companies in terms of sourcing semiconductor chip materials. There are different policies in place at different companies, which carries over into granting companies’ licenses to be able to operate. The larger impacts have been more around shifts in demand from Covid; demand unexpectedly shifted into a different direction and consumed all resources above the forecast.
One of the biggest issues was the labor shortage during Covid. As Covid spread, so too did factory closures. Qualcomm turned to more automation in its semiconductor manufacturing. The ratio of labor to output is more towards output, so the company did not need as much labor. The key was to determine which product to focus on. This ended up being high end products. Qualcomm had to rethink its position in the mid and low space since they could not service all markets with a chip shortage.
Qualcomm also faced a raw material shortage. Some resins and epoxies were not available, so the company had to look at alternative components or different methods of sourcing. By running what-if scenarios in their concurrent planning solution, Qualcomm was better equipped to handle these disruptions.
Another disruption facing the company, and the industry, was the face mask shortage. Face masks and PPE were already worn in semiconductor manufacturing plants to ensure a dust-free environment. Suddenly, face masks were in short supply as demand skyrocketed. Qualcomm had to look at alternatives to sourcing masks as well as using less physical labor to continue with its output.
My colleague, Chris Cunnane, was able to interview Mr. Wilson after his presentation. He asked Mr. Wilson how long he saw the chip shortage lasting. He told me that there is generally 6 to 7 percent growth in chip production year-over-year. The supply side is relatively fixed, and there is no big source coming on board to flood the market with more chips. On the demand side, there are some pockets that are showing weaker signals; some are based on the correction of work from home, and demand is starting to abate. The unwinding of tariff wars is also helping. Since the interview, semiconductor manufacturers have seen a shift in the chip shortage crisis, and are now facing a glut of computer chips as smartphone and PC demand declines.
How will Qualcomm prepare for the next big disruption? First and foremost, Mr. Wilson recommended that companies choose their battles for where they want flexibility. Companies need to analyze total supply and demand and have the discipline to follow through, even if it takes money and resources. In normal times there is no benefit, but companies need to stay the course even when demand and supply are equal. Dealing with disruption also takes agreements from customers. Customers need to understand that distribution could change, depending on material supplies.
Qualcomm, Mr. Wilson explained, is right in the middle of its digital transformation journey. The chip manufacturer is looking at how artificial intelligence can turn a physical environment and into 1s and 0s for better efficiencies. Qualcomm understands it needs the hardware that supports AI, and it can make the product AI ready as a result. For now, Qualcomm is looking at how it can continue to make efficient decisions on sourcing, as well as how it can make the fastest decisions for its manufacturing needs. As the speed of manufacturing moves forward, so too does the speed of decision making.
Chris Cunnane, research director for supply chain management at the AR
Source: https://www.forbes.com/sites/stevebanker/2022/09/02/qualcomms-answer-to-the-chip-shortage-a-digital-transformation/