STMicroelectronics and Infineon Require Customers to Adapt
It is easy to forget technology that we use daily has been constructed with multiple components that are present in various other products. The semiconductor is a vital component that is required for developments in all technology use in private and public sector operations.
As product development is becoming increasingly faster, the demand for consumer electronic goods is higher than ever. As the chip shortage continues to cause problems, suppliers are pushing back against customer demand and calling out for changes to be made to their inventory and production processes.
Current State of Demand
According to the, the annual number of semiconductors sold exceeded one trillion back in 2018 and have seen an increase ever since. The SIA announced totalled around US$123.1bn in the first quarter of 2021. A 3.6% increase from the last quarter and a 17.8% increase in relation to the first quarter of 2020.
Although the Covid-19 pandemic has played its role in the Chip shortage, it is not the only cause. As developments in technology are happening at a faster rate, technology companies have been gearing up for the production of the next generation of semiconductor.
Suppliers want Change
It’s clear that chip manufacturers are pushing for companies to better manage the demand for the components.
During a discussion with the Financial Times, Jean-Marc Chéry, Chief Executive of, explained how the company’s relationship with some customers has been “unbalanced in the past.” This is likely due to the developing ‘Just-In-Time’ practices followed by many large manufacturers, which causes a struggle over who will pay the cost of keeping inventory. Currently, this responsibility lies with the supplier.
Chéry explains that “If they expect the semiconductor [suppliers] to be the bank, to keep having a big working capital to support them, they can forget it.”
European chipmaker has given similar comments recently, stating that automotive companies need to adapt their processes to procure the chips. It is expected the worst of the shortage will ease by the end of this year, hopefully giving companies time to reflect on the situation.
Action from the Automotive Industry
Around 10% of semiconductor sales are with the automotive sector. According to STMicroelectronics, the figure is nearer 30%.
Jim Farley, Chief Executive of spoke to the Financial Times on the subject. Farley seems to be on board with the changes suggested by chipmakers as he talks about how he wants to rethink the company’s approach to procuring the components.
“It was very interesting for me personally as the CEO to talk to many of our colleagues in other industries and to find out how common buffer stocks are, and how common direct buys are with the foundries, even if the company still buys the components with the chips on them from a supplier,” said Farley.
Jacques Ascenbroich, Chief Executive of French tier-one parts supplier , is on the opposing side of the argument. “You have the equivalent of a 100-year flood hitting the sector . . . Does that have to call into question the whole supply chain? I do not believe so.”
Will Public Procurement Budgets Increase in 2021?
Procurement is more than just a private enterprise. COVID-19 reminded us that sourcing materials is an essential part of the government’s role. Throughout 2022, tiny departments sourced massive amounts of personal protective equipment (PPE), medical supplies, and emergency vaccines and testing kits. Even non-procurement professionals were pulled into the fray, as frantic timelines demanded nothing less.
According to Celeste Frye, co-founder and CEO of Public Works Partners, the crisis brought procurement to the attention of skilled employees who had never considered it. As non-procurement personnel stepped up to help their coworkers, many found that they’d stumbled upon a critical and rewarding job. “Existing public employees have seen the essential nature of the work”, Frye said. “[They’ve] gained some critical skills and possibly [grown] interested in pursuing procurement as a longer-term career”.
Small, Local Suppliers Take Charge
Frye, whose firm helps organisations engage stakeholders and develop long-term procurement strategies, thinks it well worth the effort to open one’s mind to new opportunities. Cooperative contracts, for instance, can help public departments and municipalities save money, time, and effort. By joining together with other towns or cities in the region, public procurement teams aggregate their purchasing power and can drive better deals.
These cooperative contracts have the added benefit of advancing equity. Smaller suppliers that struggle to compete with established firms for government contracts can act as subcontractors, helping big suppliers fulfil bits of the project. Once they get their foot in the door, small, local, and disadvantaged suppliers can then leverage that government relationship to take on additional projects.
Especially as governments start to pay attention to procurement resilience, public procurement departments must expand their requests for proposals (RFPs) to take into account innovative solutions and diverse suppliers. According to Frye, Public Works Partners—a certified female-owned firm—has benefitted from local and state requirements that specify diversity.
Post-Pandemic Funding Swells Procurement Budgets
And the pandemic won’t be the end of it. City governments need to build sustainable energy infrastructure such as solar panels, charging stations, and recycling plants, ensure that masks and medicines are never in short supply, and source new technologies to keep up with cloud and cybersecurity concerns.
Public procurement budgets will likely increase to match demand. As Peter Ware, Partner and Head of Government at Browne Jacobson, explained, “in a non-pandemic world, the [U.K.] government spends on average around £290 billion on outsourced services, goods, and works...anywhere between 10% and 14% of Gross Domestic Product (GDP). Post-pandemic, city procurement will only increase as national governments provide local divisions with emergency funding.
And in truth, government employees might jump at the opportunity. Frye noted that public procurement could give immediate feedback on new programmes: “[Procurement] is where new laws and policies ‘hit the road’ and are implemented”, she said. “Professionals in these fields get the satisfaction of creating real change and seeing quantifiable outcomes of their work”.