FACULTY OF MECHANICAL ENGINEERING

UNIVERSITY OF TECHNOLOGY MALAYSIA

SEMESTER 1 2023/24
SEMI 4883

HW 3: CASE STUDY ON CURRENT SUPPLY CHAIN

Name MATRIC NO.

MUHAMMAD AIDIL ZAINEE BIN JAFRI ZAINEE A20EM0131

Supervised by: DR. AZANIZAWATI BT MA'ARAM

1.0 THE MAIN ISSUES RELATED TO SUPPLY CHAIN

The journal, "The Impact of the Computer Chip Supply Shortage," tackles a crucial
issue on the widespread shortage of computer chips globally and its profound effects,
particularly in the automotive sector, amplified by the challenges brought on by the COVID-
19 pandemic. The case study explores how various industries heavily rely on computer chips
and outlines the difficulties companies face in securing a consistent chip supply for their
operations.

A global shortage of computer chips has led to increased prices for various products
and has restricted production in industries, particularly affecting the automotive sector. The
widespread use of computer chips across different industries has prompted each sector to secure
its own chip supply. Despite automakers accounting for only 10 percent of the total
semiconductor volume, they face challenges in obtaining chip supplies compared to other
industries. Consequently, the automotive industry has grappled with chip shortages during the
COVID-19 pandemic, resulting in production slowdowns and factory closures. The pandemic
has underscored the fragility of the computer chip supply chain, emphasizing the importance
of establishing a resilient supply chain for the future.

2.0 THE STRENGTH OF THE SEMICONDUCTOR COMPANY RELATED TO

SUPPLY CHAIN
2.1 Massive Demand

The developing usage of computer chip technology in different automated machines

has increased the demand for computer chips massively. These chips, known as wafers, are
very tiny integrated circuits that function as memory units and information processors.
Computer chips find applications in diverse products such as phones, cars, televisions, GPS
devices, and ID cards. The current trends in automotive safety, autonomous driving, and
connectivity have led to a substantial surge in the demand for semiconductors. A typical
modern automobile now incorporates approximately 3,500 semiconductors, catering to the
integration of advanced autonomous driving features such as parallel parking, cruise control,
enhanced cameras, and more.

2.2 Globalization and Utilization of Outsourcing

In the world of making computer chips, Globalization and Outsourcing mean that
companies are going global and getting some parts of their work done by other companies to
be more efficient and save money. For semiconductors, this often looks like companies
designing chips in one place but sending the manufacturing part to other specialized places,
especially in Asia where it is cheaper. They bring the finished products back to where they
started. This way, companies can focus on being creative and coming up with new ideas while
letting others handle the manufacturing part. This strategy lets them use resources from around
the world, making things flexible and cost-effective. The impact of this global approach has
changed how the industry works, making it more connected and dynamic on a worldwide scale.

3.0 THE WEAKNESS OF THE SEMICONDUCTOR COMPANY RELATED TO

SUPPLY CHAIN

3.1 Limited Capacity and Rapid Technological Innovations (IDMs)

The challenge of limited capacity and the struggle to keep pace with rapid technological
innovation pose significant hurdles for Integrated Device Manufacturers (IDMs) in the
semiconductor industry. IDMs face difficulties in swiftly expanding their production capacity
to meet the fluctuating demands for semiconductor chips, leading to potential bottlenecks in
fulfilling orders. Moreover, the relentless pace of technological advancements in the
semiconductor field places IDMs at a disadvantage compared to dedicated foundries. These
foundries, focusing solely on manufacturing, can rapidly adopt cutting-edge technologies. The
capital-intensive nature of staying at the forefront of innovation places a strain on IDMs,
hindering their ability to make substantial and timely investments in the latest technologies.
This gap in innovation not only impacts their competitiveness but also limits their flexibility to
adapt to market shifts.

3.2 Intense Competition for Limited Chip Supply

The semiconductor industry is currently experiencing fierce competition due to a

restricted availability of chips, impacting a range of sectors. The COVID-19 pandemic made
the competition for chips even more intense. The global chip shortage got worse because of the
pandemic messing up supply chains everywhere. People needed more electronic devices for
remote work and staying connected during lockdowns, making the demand for chips skyrocket.
The car industry got hit hard, facing delays and stops in production due to the shortage,
especially when trying to switch to making electric cars. With everyone trying to recover from
pandemic disruptions and adapt to new trends, the race for chips has become even tougher. The
consumer electronics industry also saw a huge demand for gadgets, adding to the competition
for chips in different sectors. The pandemic showed how vulnerable the chip industry can be,
highlighting the need to make supply chains stronger and more adaptable to handle unexpected
global disruptions.

4.0 SUGGESTIONS TO COUNTER THE WEAKNESS

To solve the problem of limited capacity and attempting to keep up with rapid
technological advances, semiconductor Integrated Device Manufacturers (IDMs) should
consider major R&D investments. Allocating money to significant R&D initiatives will keep
the organization at the forefront of technological developments. Cooperation with dedicated
foundries or specialized technology organizations can give access to the latest innovations
while increasing production capacity. Employing agile business models that allow for fast
response to market fluctuations, as well as investigating alternative options such as flexible
production schedules and modular manufacturing, can help the IDM compete more effectively.
Continuous worker training and skill development are critical to keeping employees up to date
on the newest technology developments. Furthermore, risk mitigation methods such as supplier
expansion, strategic reserve management, and contingency planning will manage possible
production bottlenecks.

To overcome the severe competition caused by the limited availability of chips,

semiconductor businesses should prioritise broadening their supply chain sources. Establishing
connections with different suppliers across regions will reduce reliance on single providers
while mitigating the risks associated with regional disruption. Strengthening supply chain
resilience by using technology such as predictive analytics, IoT-enabled sensors, and real-time
monitoring would improve the company's capacity to anticipate and respond to disturbances
effectively. Participating in collaborative industry projects, as well as engaging with industry
groups, governmental authorities, and other stakeholders, can help to develop concerted efforts
to address supply chain concerns. Strategic inventory management strategies may be employed
to protect against sudden increases in demand, ensuring flexibility in responding to market
dynamics without overloading production capacity. Advocating for government support and
incentives, such as financial assistance for technology advancements, workforce training, and
regulations that promote a stable business climate, would help the semiconductor sector remain
competitive and sustainable.
 References

Casper, H., Rexford, A., Riegel, D., Robinson, A., Martin, E., & Awwad, M. (2021, August).
The impact of the computer chip supply shortage. In Proceedings of the international
conference on industrial engineering and operations management, Bangalore,
India (pp. 236-245).