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IFAC PapersOnLine 55-10 (2022) 476–483
The
The Global
Global Semiconductor
Semiconductor Chip
Chip Shortage:
Shortage: Causes,
Causes, Implications,
Implications, and
and
The Global Semiconductor Chip
Potential
The Global Semiconductor Chip Shortage:
Remedies
Shortage: Causes,
Causes, Implications,
Implications, and
and
Potential
The Global Semiconductor Chip
Potential Remedies
Shortage:
Remedies Causes, Implications, and
Potential Remedies
Potential
Wassen Mohammad, Remedies
Adel Elomri, Laoucine Kerbache
Wassen Mohammad, Adel Elomri, Laoucine Kerbache
Wassen
Wassenand Mohammad,
Mohammad, Adel
Adel Elomri,
Elomri, Laoucine Kerbache
College of Science Engineering, Hamad Bin Laoucine KerbacheDoha, Qatar
Khalifa University,
College of Science and Engineering, Hamad Bin Laoucine
Wassen Mohammad, Adel Elomri, KerbacheDoha, Qatar
Khalifa University,
(e-mail:
Collegewamo43987@hbku.edu.qa;
of Science and Engineering, aelomri@hbku.edu.q;
Hamad Bin Khalifa lakerbache@hbku.edu.qa
University, ).
College
(e-mail: of Science and Engineering,
wamo43987@hbku.edu.qa; University, Doha,
Doha, Qatar
Hamad Bin Khalifalakerbache@hbku.edu.qa
aelomri@hbku.edu.q; Qatar ).
(e-mail:
(e-mail: wamo43987@hbku.edu.qa; aelomri@hbku.edu.q; lakerbache@hbku.edu.qa ).
Collegewamo43987@hbku.edu.qa;
of Science and Engineering, aelomri@hbku.edu.q;
Hamad Bin Khalifa lakerbache@hbku.edu.qa
University, Doha, Qatar ).
Abstract:(e-mail: wamo43987@hbku.edu.qa;
Since 2020, there has been a major supplyaelomri@hbku.edu.q; lakerbache@hbku.edu.qa
shortage of semiconductors across the globe). with no
Abstract: Since 2020, there has been a major supply shortage of semiconductors across the globe with no
end in sight.
Abstract: As 2020,
Since almostthere
all modern
has beendevices
a majorand electronics
supply shortage require
of semiconductors,
semiconductors acrossmany
the industries
globe with are
no
Abstract:
end Since
in sight. As 2020,
almostthere has beendevices
all modern a majorand
supply shortagerequire
electronics of semiconductors
semiconductors,across the globe
many with are
industries no
struggling
end in
Abstract: to meet
sight. As
Since strong
almost
2020, consumer
all
there modern
has demand.
beendevices
a majorThe
and covid pandemic
electronics
supply shortage is not
require
of only to blame
semiconductors,
semiconductors for
across thisglobe
many
the shortage,
industries
with for
are
no
end in sight.
struggling As almost
to meet strongall moderndemand.
consumer devices The
and covid
electronics require
pandemic semiconductors,
is not only to blame for many
thisindustries
shortage, are
for
instance
struggling
end in thetosemiconductor
sight. meet
As strong
almost all supply
consumer
modern chain
demand.contained
devices The
and already
covid
electronics many
pandemic vulnerabilities
is
require not only to and weak
blame
semiconductors, for points
this
many that were
shortage,
industries for
are
struggling
instance thetosemiconductor
meet strong consumer demand.
supply chain The covid
contained pandemic
already is not only to blame
many vulnerabilities for this
and weak shortage,
points for
that were
merely exasperated
instance the by theconsumer
current situation. In this paper, an overview
is not of thetosemiconductor supply chain
strugglingthetosemiconductor
meet strong
instanceexasperated
merely semiconductor supply chain
demand.
supply situation.
by the current chain contained
The
contained already
covid
In this already
paper, an
many
pandemic
many vulnerabilities
only
vulnerabilities
overview
and
and weak
blame points
for this
weak
of the semiconductor
that
shortage,
points were
for
thatchain
supply were
is performed
merely
instance the with a by
exasperated focus
semiconductor the on its main
current
supply vulnerabilities.
situation.
chain In this
contained The main
paper,
already an reasons
overview
many behind
of the
vulnerabilities the shortages
semiconductor
and weak are discussed
supply
points that chain
were
merely
is exasperated
performed with a by theon
focus current situation.
its main In this paper,
vulnerabilities. an overview
The main reasons of the semiconductor
behind the shortages aresupply chain
discussed
and
is the exasperated
impacts on many theindustries are examined.
In this Finally, recommendations the and remedies are suggested.
is performed
merely
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with
withonaa many
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theremedies
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supply
are chain
discussed
suggested.
Copyright
and
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performed
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impacts2022
with
© 2022 on IFAC.
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Authors. Authors.
industries
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an open Finally,
access The recommendations
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the CCbehind and
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BY-NC-ND remedies
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discussed
and the impacts
Copyright © many The
industries
Authors.are examined. Finally, recommendations and remedies are suggested.
Copyright
and
Keywords: ©
the impacts2022onIFAC.
many The
semiconductor
(https://creativecommons.org
Copyright © 2022 IFAC. Authors.
industries
supply
The are examined.
chain, Finally,
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/licenses/by-nc-nd/4.0/)
Authors. recommendations
shortage, semiconductor andcrisis,
remedies arechain
supply suggested.
Keywords:
Copyright semiconductor supply chain, semiconductor shortage, semiconductor crisis, supply chain
disruptions,©
Keywords: 2022 IFAC.
supply The Authors.
chain resilience,
semiconductor supply supply
chain, chain visibility
semiconductor shortage, semiconductor crisis, supply chain
Keywords: semiconductor
disruptions, supply chain,
supply chain resilience, supplysemiconductor shortage, semiconductor crisis, supply chain
chain visibility
disruptions, supply
supply chain
disruptions,semiconductor
Keywords: chain resilience,
supply chain,
resilience, supply
supply chain
chain visibility
semiconductor shortage, semiconductor crisis, supply chain
visibility
disruptions, supply chain resilience, supply chain visibility

Figure 3: A Simplified Outlook on the Global SSC inspired from (Varas et al., 2021).
Figure 3: A Simplified Outlook on the Global SSC inspired from (Varas et al., 2021).
Figure
Figure 3: 3: A
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et al., from2021). (Varas
However,et al., none
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1. INTRODUCTION (Casper et al., 2021). However, none of them explores the
reasons behind
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1. INTRODUCTION
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Nowadays, semiconductors 1. INTRODUCTION
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considered the applications.
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electronics.other
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the 2020, there
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considered the
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across the entire shortage
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2.
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10.1016/j.ifacol.2022.09.439
 Wassen Mohammad et al. / IFAC PapersOnLine 55-10 (2022) 476–483
(12.0%), automotive (11.4%), and government (1.0%) were
the five main demand drivers for semiconductors in 2020.
Figure 1: Semiconductor Demand Drivers in 2020 (SIA,
2021a)
As summarized in Figure 2, the SSC consists of four main
steps: Pre-competitive research, Chip design, Wafer
fabrication (front-end manufacturing), and Assembly,
packaging & testing (back-end manufacturing). These steps
are supported by a highly specialized environment consisting
of: materials, equipment and tools, advanced electronic design
automation (EDA) software, and architectural building blocks,
which are referred to as intellectual property (IP) core blocks
(Varas et al., 2021).
Every activity in this value chain requires considerable
specialization and offers an opportunity to add significant
value. Few supply chains exhibit an ecosystem that is as
complex, intertwined, and widespread geographically as the
SSC (SIA, 2016). On average, around 25 countries are
involved in the direct supply of each segment of the
semiconductor value chain. Before making it to the end
consumer, one semiconductor product may cross international
borders around 70 times (S. Alam et al., 2020).
Figure 2: The Semiconductor Value Chain (Varas et al., 2021)
There are six main participants of the total global output of the
semiconductor industry: US, China, Taiwan, South Korea,
Japan, and Europe (Varas et al., 2021). The SSC is designed
this way to get the maximum benefit from the diverse and
unique skills of these different participants. An illustration of
the global SSC is illustrated in Figure 3, which shows a typical
journey of a semiconductor. Design and high-end
manufacturing are usually done in the US, Canada and
European countries. Raw materials are usually supplied from
Japan, the US and some European countries. Companies in the
US, Japan, and Europe, specialize in developing highly
advanced equipment. As for manufacturing, assembling,
477
testing, and packaging, it is usually done in China, Taiwan,
Malaysia, and other Asian countries (SIA, 2016).
As per the above facts, one can conclude that the SSC is quite
centralized, where design is concentrated in one area, and
manufacturing is concentrated in another area. For instance,
about 75% of the manufacturing capacity and needed key
materials are located in China and East Asia. In addition, 92%
of the world’s most advanced manufacturing capacity of
semiconductors are located in Taiwan (Varas et al., 2021). The
value chain contains regional clusters for individual
components. For instance, in almost all semiconductor
products, polymeric material is used and is primarily
manufactured in Japan, Taiwan and South Korea. This create
a vulnerability in the SSC since there is a high concentration
of a crucial component in a specific region (Hales et al., 2021).
According to Deloitte (2021), the majority of the top chip
design companies rely on Asia Pacific region to manufacture
their semiconductor chips. Over 70% of the total
semiconductor manufacturing is collectively owned by the two
most influential chip manufacturers: TSMC (Taiwan) and
Samsung (South Korea). By 2020, Taiwan and South Korea
accounted for the majority of the total semiconductor contract
manufacturing (Duncan Stewart et al., 2021). More than 60%
of the world’s assembly, packaging and testing capacity is
accounted for by mainland China and Taiwan (SIA, 2021a).
3. IMPACT ON INDUSTRIES
There has been a major impact on many businesses and
industries. According to (Gopani, 2022), over 169 sectors and
consumer lines were affected by the semiconductor shortage.
From the perspective of each demand driver illustrated in
Figure 1, the impact on these industries is discussed in this
section.
4.1. Computers
In order to cope with the lockdown during the pandemic,
people began to work from home, learn on Zoom, and watch
shows on Netflix, resulting in a huge increase in demand for
laptops and tablets (Knight, 2021). Component shortages and
other supply challenges occurred from the spike in demand in
the PC market (IDC, 2021). The global semiconductor
shortage has caused lead times to be prolonged by as much as
120 days for some PC models, resulting in price increases in
the bill of materials, which were passed on to customers (Kaur,
2021). With COVID-19 vaccinations becoming more
accessible by the public, consumer and educational
expenditure shifted away from computers towards other
priorities, slowing the market's progress (Gartner, 2021b).
Due to a demand decrease for the Chromebook in the
education market, HP saw a 30 percent drop in shipments.
Furthermore, HP had a large number of unfilled orders,
resulting in a missed opportunity to its competitors (Gartner,
2021b). Due to component shortages, Intel reported a 5% drop
in revenue from notebook sales. On the plus side, their desktop
PC sector saw a 20% increase in revenue. However, it was
insufficient to make up for the notebook sales losses
(Gartenberg, 2021).
478 Wassen Mohammad et al. / IFAC PapersOnLine 55-10 (2022) 476–483
4.2 Communication
The lack of semiconductor chips has greatly affected the
smartphone industry, reducing planned production volumes. In
2020, smartphone sales fell by 12.5% (Gartner, 2021a), and
prices are projected to continue rising (Goswami, 2021).
According to Counterpoint (2021), the semiconductor scarcity
has affected 90% of the smartphone industry. Many
smartphone suppliers have made large component orders by
the end of 2020. However, most smartphone manufacturers
reported only receiving 80% of their order requests.
Samsung canceled the Galaxy Note series due of a
semiconductor shortage (Adhikari, 2021). China's Xiaomi has
lost more than 30% of its worth in 2021 owing to the
semiconductor scarcity (Bloomberg News, 2021). Meanwhile,
Huawei dropped to No.2 behind Apple, the biggest drop
among the top five smartphone-makers (Gartner, 2021a).
Apple, on the other hand, is doing well despite the present chip
scarcity situation (Goswami, 2021). Even with the
semiconductor shortages, this smartphone business grew due
to proactive planning, order placement, as well as hoarding
some high-value critical components (Counterpoint, 2021).
4.3 Consumer
TV prices have risen by almost 30% in the recent months of
2021, directly linked to the chip supply situation. In fact,
devices that require display-bound integrated circuits are
difficult to develop due to requiring older type of chips. Those
less advanced chips are created in facilities that have not been
upgraded to match current demand (Knight, 2021). Cameras
rely on semiconductors as well. Sony's new ZV-E10
Mirrorless Vlogging Camera has been suspended due to the
scarcity of semiconductors. Fujifilm, Nikon, and Canon are
also affected. Canon's EOS R3 Mirrorless Camera has
experienced shipping delays of up to 6 months during 2021
(Thubron, 2021).
Another victim of the semiconductor shortage are printer
manufacturers. Canon has released instructions for consumers
on how to bypass its Digital Rights Management (DRM)
protocols when using their printers. DRM in ink cartridges is
a way to discourage consumers from purchasing third-party
ink cartridges; usually the printers will display error messages
when inserting ink cartridges not manufactured by Canon.
With the semiconductor chip shortage, Canon was forced to
manufacture printers that cannot identify their own cartridges.
Canon had to resort to telling its own customers to bypass the
error message when refilling their ink cartridges, which is
something consumers already did when purchasing ink
cartridges from third-party sellers that are much cheaper
(Gault, 2022).
The chip shortages have also harmed the gaming business.
Valve's Steam Deck mobile gaming PC was originally
scheduled to launch in December 2021, but has now been
postponed until February 2022 (Peters, 2021). A forecasted 1.5
million reduction in Nintendo Switch sales was anticipated by
November 4, 2021. Due to component and logistics
challenges, Sony's PlayStation 5 target output has been cut
from 16 million units to around 14.8 million units. The PS5
was released in the year 2020 and has been hard to find in
stores since then. Because vaccination accessibility varies by
country, chip supplies have been inconsistent. As a result,
some gamers purchased PC editions of some PlayStation
games (Mochizuki, 2021).
4.4 Industrial
Semiconductors are also vital to many sectors, including the
healthcare sector for instance. Many medical equipment
designed for specific applications require semiconductors. In
an event of supply shortages, this type of equipment cannot be
substituted with anything else, as they are not commodities
easily replaced. One example of the semiconductor shortage
impact was noticeable for manufacturers of medical
ventilators. In 2020, there was over 9 million components of
unmet demand, which was indicated by ventilator
manufacturers (SIA, 2020).
The Internet of Things (IoT) industry has also been
significantly impacted by the chip shortage. Around 80% of
the global manufacturers are struggling in producing digital
products, which require semiconductors. The advancement
and development of this technology has been hindered as a
result (Gregersen, 2021). There has been a major decline in AI
performance breakthroughs, due to specialized hardware
shortage that needed unavailable semiconductors. In fact, AI
model architectures are evolving much faster than new AI
chips hit the market, making the new models and available
semiconductor compatibility obsolete (Ceze, 2021).
4.5. Automotive
The scarcity of modern automobile "brains" has severely
affected the automotive supply chain. The semiconductor
shortage might cost the US $61 billion in sales in 2021. Cars
are nowadays viewed as “computers on wheels,” with
electronics accounting for 40% of a car's value (Nicholas et al.,
2021). An estimated $210 million will be lost on auto sales
globally in 2021 (Takezawa, 2021). The chip scarcity has
forced automakers to build and then park unfinished
automobiles until they have received the required chips. In
addition, some cars were offered to buyers without some usual
features (Lienert, 2021).
The global manufacturing of the world’s No. 1 carmaker
Toyota fell from 845,107 units last year to 627,452 this year,
resulting in around 20% decline in sales (Takezawa, 2021).
Volkswagen AG experienced the lowest drop in sales in the
past decade due to the semiconductor shortage as well
(Raymunt, 2022). Honda dropped production by roughly 4,000
cars in one Japanese factory, while Ford shutdown two plants
in Kentucky and Germany (Nicholas et al., 2021). General
Motors has reactivated plants that had been offline since mid-
summer 2021 and is currently inserting chips into automobiles
that were previously parked unfinished. This resulted in clients
purchasing 2021 vehicles as 2022 models were also going into
sale (Tucker, 2021).
Most automakers use Just-in-Time (JIT) planning; only
preparing for the next week or month. Even with the current
issues, they are hesitant to abandon their lean production
practices because the benefits outweigh the drawbacks. In this
example, the benefits of lowering inventory through lean
 Wassen Mohammad et al. / IFAC PapersOnLine 55-10 (2022) 476–483
tactics outweigh the costs of rare disruptions like the current
chip shortage (Nicholas et al., 2021). Tesla, BMW, and
Porsche reduced the number of options in their car models
requiring semiconductor chips, in order to cope with the chip
scarcity. Touchscreens, multi-adjustable chairs, and USB ports
are examples of trimmed features (Gastelu, 2021).
4.6. Government
A report by the White House states how the government has
been affected by the shortage, as semiconductors are essential
in many ways including defense and aerospace,
telecommunications networks, energy and utilities, healthcare,
and financial services. One of the central roles of the
semiconductor is being a vital part of national security. They
enable the development of advanced weaponry and critical
infrastructure. Virtually every military system requires
semiconductors in their operations, which include
communication and navigation systems (The White House,
2021a).
4. REASONS OF SSC SHORTAGE
The reasons behind the semiconductor shortage could be
grouped into three main categories shown in Figure 4 and are
discussed in this section.
Figure 4: Main Semiconductor Shortage Reasons
3.1 COVID-19 Disruptions
No industry has been immune to COVID-19 implications and
the semiconductor industry was no different. The revenue
projection of the semiconductor industry has been overall
decreased by $55.0 billion in 2020, during the peak of the
pandemic. Along with this, there has been three main
disruptions: Demand, Supply and Workforce disruptions
(Accenture, 2020).
Demand disruptions included the sudden surge in demand of
Working from Home (WFH) products such as laptops, tablets,
smart home devices, etc., and a decrease in demand for
consumer electronics, such as smart phones, due to loss of
income (Accenture, 2020). Due to the pandemic in 2020, auto
parts suppliers shut down facilities to mitigate the spread of
the virus and canceled their chip orders to limit their inventory
costs in anticipation of a drop in vehicle demand (The White
House, 2021b), which resulted in a sudden variation in
demand. As a result, many suppliers sought out other markets
that were still thriving despite the pandemic. These included
the main eight cloud infrastructure providers, who saw a
demand surge for WFH products (Shein, 2021).
479
Supply disruptions included the forced closure of chip
manufacturing plants due to global lockdowns (Ravi, 2020;
Ro, 2020), resulting in the depletion of semiconductors
production and inventory (Peters, 2021). Other supply
disruptions were due to logistic-related issues. During the
pandemic, the reduced amount of flights and closure of
airports meant there were delayed chip shipments. Items
related to COVID-19 were being shipped worldwide, which
took up a lot of capacity. This resulted in engine failure in
some airplanes, due to increased pressure on their cargo
capacity. Overall, air cargo capacity in 2020 declined by 20%
(S. F. Alam et al., 2021).
Workforce disruptions included the sudden requirement for
quick and massive shift to WFH. This in turn resulted in the
need for remote working tools as well as workforce flexibility.
The extended time in quarantine also negatively affected
employee morale. On the positive side however, this started a
new level of workforce flexibility (Accenture, 2020) which
could in turn help improve the robustness of the SSC overall.
3.2 SSC Complexity
The COVID-19 pandemic has only exacerbated the current
situation, however, the SSC is inherently challenging and
facing issues as it is highly complex in nature. Unique
challenges faced in this case include long fabrication cycle
times, a lot of variability and stochasticity, and non-linear
manufacturing processes (Sun & Rose, 2015). Semiconductors
are exceptionally difficult to produce. In fact, making these
chips is one of the most R&D intensive manufacturing
processes to exist. At such a miniature scale, highly specialized
inputs and equipment are required to achieve the needed
precision. Up to 1,400 process steps in the manufacturing of a
semiconductor may be needed depending on the complexity of
the chip (SIA, 2021b).
The average manufacturing cycle time of a semiconductor may
take up to 26 weeks. To begin with, around 12 weeks are
required to manufacture the semiconductor wafer; however,
this might take up to 20 week for advanced processes. The next
procedure is called back-end assembly, test, and packaging
(ATP) which may take up to 6 weeks. This is illustrated in
Figure 5. Ultimately, the lead-time between a customer placing
an order and receiving the final product, may take up to 26
weeks (SIA, 2021b).
Figure 5: Semiconductor Production Timescales from (SIA,
2021b)
In addition to being a complex process, it is also very capital
intensive, the fabrication of an entire wafer can cost up to $10
billion due to extremely expensive machines, each costing up
to $100 million (Mönch et al., 2018a). Currently, with the
market demand running high, capacity utilization of
semiconductor fabrication facilities are already higher than
480 Wassen Mohammad et al. / IFAC PapersOnLine 55-10 (2022) 476–483
80% with some reaching 90-100% (SIA, 2021b). Increasing
capacity however, is time consuming and expensive as
expansion could take up to 9 months (Alam et al., 2021).
Additionally, a solution found for one type of wafer
fabrication, might not be applicable for the rest of the supply
chain (Mönch et al., 2018a).
The SSC also spans over wide geographical areas. Its
manufacturing facilities are distributed across different
continents and into several different countries. Consequently,
it needs to deal with different tax laws, import controls and
diverse regulations (Mönch et al., 2018b). Furthermore, the
geographic specialization mentioned in Section 2, has many
positive aspects for the semiconductor industry mainly to take
large advantage of economies of scale. However, activities
being highly concentrated in certain regions has ultimately
created two types of vulnerabilities: (1) Large scale disruptions
can occur because of single points of failure, (2) Global access
to suppliers or customers can be impaired due to geopolitical
tensions (SIA, 2021a). Due to the SSC being highly
globalized, disruptions happening in one region may cause
bottlenecks in other region, (SIA, 2020).
3.3 Geopolitical Issues
Geopolitical tensions have globally risen in the past decade. In
July 2019, Japan imposed restrictions on exports to South
Korea following Korean court rulings against some Japanese
businesses. This was a major concern for South Korea, as three
key chemicals needed for semiconductor manufacturing were
mainly imported from Japan. These are namely hydrogen
fluoride, fluorinated polyimide and photoresists. During 2020,
these tensions have eased with Japan approving export
requests for these three chemicals; however, the situation is
still sensitive (Varas et al., 2021).
In the meantime, the US and China have been locked in a
“trade war” initiated by the previous US administration and
whose objective is to make semiconductor manufacturing in
China difficult. For instance, just last September, the US
imposed export restrictions on the Semiconductor
Manufacturing International Corporation (SMIC), the largest
semiconductor firm in China, (Hoffower et al., 2021).
Currently, the only current viable suppliers of EDA and critical
equipment are US companies as they are effectively blocking
Chinese companies from sourcing semiconductors. This will
have negative impacts for China’s advanced chip production
in the short run. However, China is the biggest market for the
US in terms of the semiconductor industry. In the long run, this
will mean a significant loss of revenue from the Chinese
market (Purkayastha, 2021). Additionally, this may trigger a
retaliation from China, especially since this country has rare
earth materials needed such as germanium, lithium or tungsten
(Varas et al., 2021).
5. RECOMMENDATIONS AND REMMEDIES
Despite the global supply chain running at full capacity, the
semiconductor shortage crisis is expected to persist well into
2022 (Dohner, 2022). The SSC must try matching supply and
demand by improving its resilience and flexibility. In this
section, a brief overview of government reactions are given,
and then some recommendations and remedies are discussed.
5.1. Government Reactions
Governments are currently pushing to increase local
semiconductor supplies to guard against future shortages.
Through a process called “localization”, the United States,
China, and European Union, have made commitments to
increase their semiconductor manufacturing capacity (Duncan
Stewart et al., 2021). According to (Joseph, 2021)
governments around the world are attempting to solve this
issue by investing in local semiconductor manufacturing
facilities and increasing their semiconductor research funding.
In addition, there has been policy interventions by
governments around the world in an attempt to deal with this
crisis, summarized in Table 1.
Table 1. Government Policies and Interventions to deal with
the semiconductor shortage crisis, (Joseph, 2021)
Region Policy/Intervention
United Innovation and Competition Act aim to spend
States $52 billion over the semiconductor industry
European European Chips Act aims to accelerate the
Union development of semiconductors
South Spend $451 billion on domestic
Korea semiconductor production
Taiwan Invest $100 billion to meet the rising demand
of semiconductors and expand its
semiconductor foundry in Arizona, US
Japan Semiconductors and Digital Industry Policy to
increase production share of semiconductors
and introduce new fabrication factories
India Facilitate semiconductor manufacturing start-
ups by introducing ‘Semiconductor Startup
Incubation and Acceleration Programme’
5.2. Creating a Resilient SSC
Diversify crucial components of the supply chain.
More than 65% of the global market share could be held within
one region across 50 points in the SSC supply chain, regardless
of the region’s level of risk. All of these regions are considered
as single points of failure as there could be disruptions caused
by natural disasters, geopolitical tensions, shutdowns, etc.
(Varas et al., 2021).
One company that successfully dealt with the chip shortage
crisis is Tesla. While many automobile manufacturers
struggled, Tesla has thrived, increasing its car sales in 2021 by
100% from 2020. Despite shutting down a plant briefly, the
company has emerged as a successful case study on how to
deal with the chip shortage. This is due to the company
producing chips in-house, and has been responsive enough to
re-write some software to work better with alternative
manufacturers. Other brands such as Apple has also announced
 Wassen Mohammad et al. / IFAC PapersOnLine 55-10 (2022) 476–483
they will be producing their chips in-house (Gopani, 2022).
The takeaway lesson here is to increase supply chain
flexibility. By producing some chips in house, and having
products compatible with different types of chips according to
availability, supply chain resilience can be significantly
improved.
According to (Varas et al., 2021), the pursuit of complete self-
sufficiency is not the solution to these challenges as it
incredibly costly and its feasibility is questionable. In an
extreme hypothetical scenario, they presented what complete
“self-sufficiency” looks like and must consist of, including
having local firms in EDA and IP cores, deign semiconductors,
manufacture all specialized equipment, have all raw materials,
carry out front-end and back-end manufacturing, and ensure
enough capacity to meet 100% of domestic demand for
semiconductors across all applications. According to their
analysis, this would cost $900 to 1,225 billion at a global level,
which is a staggering cost aside from it having questionable
feasibility.
There are many reasons why this extreme hypothetical
scenario is very difficult to accomplish. An equivalent 40% of
the existing global capacity has to be built, resulting in a
massive overcapacity. Capacity of each region needed to cover
the entire local semiconductor requirements, including raw
material production, manufacturing of wafers, assembly,
packaging and testing, can incur over $800 billion in capital
expenditure. Assuming a region is able to acquire the funding
needed, building facilities will take years and 3000 to 6000
employees will be required to operate them, mostly skilled
technicians and staff. With at least 30 types of semiconductors
available in the market, each region would need to be able to
replicate its competitors in all semiconductor types. In addition
to other costs, such as replicating manufacturing equipment as
well as EDA and core IP (Varas et al., 2021).
Strengthening the resilience of the SSC should be the goal
through targeted policies that expand open trade and balance
the needs to national security. Building a SSC that is less
vulnerable to disruptions require additional manufacturing
capacity in the US and Europe, which creates a more
diversified global footprint. Alternatives (domestic or third
countries) should be developed for critical areas in the SSC
threatened by disruptions (Varas et al., 2021). Reshoring
crucial outsourced components must also be considered in this
case (Hales et al., 2021).
Expansion of local capacity is essential in addressing major
vulnerabilities in the SSC. For instance, it would allow the US
to meet the necessary domestic demand for national security
systems, aerospace, and critical infrastructure while other
demand could be covered by third party manufacturers.
Aiming to cover the entire US semiconductor demand would
cost over one trillion dollars over ten years (Varas et al., 2021),
which is inefficient and costly. In this way, SSC should try to
achieve the perfect balance between producing onshore and
offshore depending on the country’s needs.
481
Manufacturing improvements.
Semiconductor manufacturing is complex and increasing
capacity is extremely costly and takes years. However, there
are methods that can be used to improve the current situation.
New emerging technology such as Artificial Intelligence (AI)
can be very useful in reducing lead times of chip production.
Chip production process can be significantly reduced and done
entirely by AI. While it takes 6 months for humans to build
one processor, AI can do it in less time (Gopani, 2022).
In order to optimize efficiency, many semiconductor supply
chains were built on JIT concept with the assumption that
everything will be running smoothly as usual. However, this
recent crisis has demonstrated how JIT can have devastating
impacts under supply chain disruptions. For instance, a $30
chip shortage can stop the entire production line of a car worth
$30,000, which suggests that the threat of the semiconductor
shortage outweighs the benefit of the JIT principle in this type
of supply chain (S. Alam, 2021). Manufacturers must amend
their inventory polices in the long term to include more buffer
stock for emergencies (Bowman, 2021).
Enhance visibility through digitization.
IoT has been cited as a creative solution for semiconductor
shortage. Disruptions can be predicted through real-time data
sharing and analysis. Furthermore, problems can be identified
ahead of time and dealt with accordingly, improving the
efficiency and resilience of the supply chain (Gregersen,
2021). Manufacturers are able to make sophisticated decisions
based on collected information and making use of data
elements that were in siloed applications previously. End-to-
end performance can be improved from IoT analytics
throughout the SSC including demand forecasts, production,
scheduling, and inventory control (Black, 2021). AI can also
scan for chip defects in real time (Gopani, 2022), improving
quality control processes.
Dell’s digitized supply chain has helped in dealing with the
semiconductor shortage. Supply and demand scenarios are
simulated in their digital model, allowing them to make
decisions to either prioritize or cut down on certain SKUs
when supply is running low. More companies are turning to
digitization with the aim of increasing their supply chain
agility in order to respond quickly to demand and supply
volatility (Zimmerman, 2021).
6. CONCLUSIONS
The SSC is extremely vital in today’s world and has been
constantly evolving into an ever-increasing specialized value
chain. Along with its growth, its complexity has also
increased. Recent disruptions such as COVID-19 had
devastating impacts, as the SSC vulnerabilities got exasperated
during the past two years. Industries all over the world suffered
these consequences, however some excelled in approaching
this new challenge. Ultimately, building a resilient supply
chain is the way forward in order to eliminate or minimize
impacts of such disruptions. Therefore, future work must aim
to first quantify SSC resilience and find areas where
improvements can lead to the greatest increase in its resilience.
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