Why specialist storage is one answer to global chip shortage

Dennis Menefee is CEO of Partstat, a supply chain solutions company that buys, stores and fulfill up to 10 years of inventory so its customers don't have to.

Tell us a little of yourself and Partstat

In the late 80s, I got into electronics, and in 1991 I founded Partstat. From there, it’s been an exercise in adapting our company and the services we provide to meet the growing demands of our customers. 

In 2012, we identified an opportunity to heighten our value to customers by harnessing and reviewing data from a large scale. This insight guided the development of our big data warehouse that gives us real-time inventory positions of all the major authorised distributors and component manufacturers. 

When will the semiconductor shortage ease?

Intel’s CEO said he felt the chip shortage will go into 2024, but that’s a bit optimistic in my opinion. Rising inflation and interest rates have put constraints on the semiconductor industry as it tries to work through the critical labour shortage and ramp up production. 

There are also geopolitical issues at play. Taiwan makes a huge amount of the world’s chips, but if China makes its move it will worsen the chip shortage. 

Which sectors have been hardest hit?

Any sector that’s electronic and dependent on semiconductors has been hard hit. 

On the OEM level, companies that use many different semiconductors but not a high volume of any of them have been severely impacted. In the queue, they’re behind companies requiring high volumes of chips. 

How are businesses responding to the shortage?

Having experienced similar inventory challenges in the past, we’ve learned that, when there’s a disruption or technology change, OEMs tend to double and triple orders from multiple suppliers. But, when OEMs receive the inventory, they cancel the other supplier orders and this creates issues, including potentially an abundance of inventory in the marketplace. 

Manufacturers are aware of this and are carefully measuring how they upscale production, knowing that past forecasting has been an issue.

One way OEMs can gain a stronger position with chip manufacturers is by making a financial commitment to the manufacturer over a specific period of time, for a specific volume of inventory. 

Why does stockpiling chips mean storage facilities need upgrading? 

Semiconductors cannot be stored in ambient storage facilities. A high percentage of third-party logistic companies have storage areas that aren’t air-conditioned or humidity controlled. The careful handling of semiconductors is a significant challenge for such companies. For them, it’s primarily about the footprint on the storage facility floor, and shipping inner and outer box quantities. 

Semiconductors are delivered inside vacuum-sealed packaging, which means warehousing facilities need a special environment and experienced, trained employees to open the packages, remove the quantities the manufacturer requires, ship them according to their specifications to protect them, and then repackage them for future delivery. 

It’s a more sophisticated fulfilment and warehousing environment than what is available in most storage facilities today, so upgrades are needed to handle the chips properly. 

The Partstat environment and warehouse staff are equipped to handle and store semiconductors and electrical components appropriately. Our facility in Florida is air-conditioned and it’s a humidity-controlled environment. Plus, we have a semiconductor vault designed for irreplaceable or obsolete components. It has a 1,000lb door, and is fireproof and hurricane proof. 

What is end-of-life inventory?

The lifecycle of a semiconductor is three to five years, but the lifecycle of some of our customers' products can be 10, 15 or even 25 years. There’s a big gap and that’s where our solution was born: helping customers with business continuity by securing end-of-life components, and providing them to customers to support the entire lifecycle of their products. 

Best piece of advice received?

The main thing is to always make the main thing the main thing. My team hears this from me almost every day.

Who inspires you?

Innovators and disruptors such as Steve Jobs and Elon Musk. We didn’t know we needed the iPhone until it was developed, and now it’s a necessity for many of us.