May 4, 2021

Volkswagen Chattanooga’s Severe Semiconductor Shortage

Supplychain
Semiconductors
COVID19
Volkswagen
Oliver Freeman
5 min
Volkswagen’s Chattanooga plant welcomes adaption as global semiconductor shortages choke the leading car manufacturers production capabilities.
Volkswagen’s Chattanooga plant welcomes adaption as global semiconductor shortages choke the leading car manufacturers production capabilities...

Officials at Volkswagen’s Chattanooga Assembly Plant have announced that production will be suspended from Friday, May 7th, through Monday 10th, before resuming operations on Tuesday 11th, due to a “significant shortage of semiconductor capacities”. 

What does this mean?

Unlike many cases during a COVID-19-ravaged era, the pause in production isn’t caused by the pandemic but by a supply chain bottleneck that is preventing leading manufacturers from producing the all-important semiconductor. 

Amanda Plecas, a Volkswagen spokeswoman, stated that the production comes as a result of “the increasing demand for consumer electronics on the one hand, and the recovering automotive markets on the other, this has also led to supply bottlenecks in the automotive industry since the turn of the year. The result is industry-wide adaptations in automobile production."

What is a Semiconductor? 

The semiconductor is, arguably, the most important piece of technology in any device. 

There is a myriad of intricate little parts in every device that you own ─ we rely on them to make modern technology work. But in every snazzy gadget, there is always a mainframe of sorts that ensures every other part works harmoniously and as it should. In this case, that’s exactly what a semiconductor does. 

As industry-leading supply chain specialist, Adebayo Adeleke notes in his recent paper, “[the semiconductor is] like the little brain of any electrical device that you now own. It makes it all tick.” 

Adeleke goes on to state that “right now, the semiconductor industry is responsible for creating a component that enables advancement in communications, computing, healthcare, military systems, transportation, clean energy, and a myriad of other applications. 

Needless to say, the mighty semiconductor is playing an increasingly important part in everyday life. And, right now, to repeat the news of the day: we keep running out of this magical little component, and the shortages are “shorting” the technological hives of leading economies, including the United States and their Eastern counterpart, China.”

Who Else Is Affected?

As Adeleke’s sentiments suggest, many organisation’s are suffering as a result of the current shortage ─ not just Volkswagen. In recent times, German luxury brand, BMW, has had to close two plants, including its Mini facility in Oxford, United Kingdom, due to a shortage of semiconductors. Nissan, Toyota, Ford, and Jaguar Land Rover have also recently joined the list of automobile manufacturers closing their doors in the looming shadow of the supply chain struggle.

President Biden the Brave

To address the global shortage, President Joe Biden and the Democratic Party recently decided to step in with a federal stimulus. In a meeting with automotive and tech executives, Biden called for a bipartisan push to strengthen the United States semiconductor industry and announced that the federal government had earmarked US$50bn to boost America’s home soil semiconductor production. 

A drop in the ocean, according to Adeleke.

“It’s a step in the right direction from the higher-ups, but it’s ultimately pointless; I imagine tumbleweed rolled across the room when Biden delivered that line to the tech executives. Why? Because, according to the Semiconductor Industry Association, to make the US self-sufficient for its chips, it’d cost a whopping US$1.4tn in investments and government incentives over a decade.” 

Lopsided Supply-and-Demand

Back in January, the team at Gartner calculated, through preliminary findings, that the semiconductor industry’s worldwide market revenue had grown by approximately 7.3%. In a recent announcement, it turns out that growth actually hit 10.4%, rising in value to US$466.2bn in 2020, despite ongoing supply chain disruptions caused by the COVID-19 pandemic. That’s a staggering level of growth in a world that has borderline fallen apart in recent times.

Adeleke looked at this development and told the world that, while it sounds like a positive, the reality is that it just isn’t. “The problem is, technology has advanced at such a rapid pace in recent years, and every year hungry consumers demand “the next best thing” ─ a reality made possible only by the very best, cutting-edge semiconductors. Semiconductors that have been successfully monopolised by Samsung in South Korea and Taiwan Semiconductor (TSMC) ─ the industry-leading producer ─, and politicised by warring superpowers.” 

Where Does the Shortage Come From? 

The blame for our global semiconductor shortage tends to be put at the feet of COVID-19 and its effect on the manufacturing industries in both South Korea and Taiwan, where the bulk of the cutting-edge chips are created. And, while we’re right to claim that the pandemic was a catalyst for the issue, it’d be wrong to say that it’s the sole cause. 

Looking deeper into the shortage, there’s a very obvious issue that is being brushed under the global pandemic-shaped carpet: consumer demand and the politicisation of technology. 

“Due to the demand for cutting-edge chips [in recent years], leading semiconductor manufacturers have been evolving their manufacturing plants to ensure that they can produce the next generation of semiconductor year-on-year. They were forced to look forward and to stop looking back”, says Adeleke.

“Now, courtesy of a shift to work-at-home norms, there’s a higher demand for electronics that run, not just on the cutting-edge chips but the older, less-sophisticated ones ─ and suppliers haven’t got any. 

This, once again, brings us back to the ferocious, politicised war between the technology titans of leading nations and the consumer greed that accommodates and justifies the demand for “flagship” devices”, he adds. 

Semiconductor Shortage ~ Business Fatality

This potentially fatal mistake is now forcing leading semiconductor manufacturers to attempt to alter their current production lines to meet the demand of each consumer market that relies on cutting-edge chips to power their technology ─ automobiles, handheld devices, and home appliances. 

But, arguably, it’s too little too late. Leading organisations are already starting to close the doors of their production plants, and, in the case of automobile manufacturers and smart device creators, the subsequent losses that they will sustain in the coming quarters could well cripple their future potential. 

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Jun 9, 2021

Biden establishes Supply Chain Disruptions Task Force

supplychain
Supplychainriskmanagement
Procurement
Biden
3 min
US government lays out plans for supply chain transformation following results of the supply chain review ordered by President Biden in February

The US government is to establish a new body with the express purpose of addressing imbalances and other supply chain concerns highlighted in a review of the sector, ordered by President Joe Biden shortly after his inauguration. 

The Supply Chain Disruptions Task Force will “focus on areas where a mismatch between supply and demand has been evident,” the White House said. The division will be headed up by the Secretaries of Commerce, Transportation, and Agriculture, and will focus on housing construction, transportation, agriculture and food, and semiconductors - a drastic shortage of which has hit some of the US economy’s biggest industries in consumer technology and vehicle manufacturing. 

“The Task Force will bring the full capacity of the federal government to address near-term supply/demand mismatches. It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints,” the White House said. 

In late February, President Biden ordered a 100 day review of the supply chain across the key areas of medicine, raw materials and agriculture, the findings of which were released this week. While the COVID-19 health crisis had a deleterious effect on the nation’s supply chain, the published assessment of findings says the root cause runs much deeper. The review concludes that “decades of underinvestment”, alongside public policy choices that favour quarterly results and short-term solutions, have left the system “fragile”. 

In response, the administration aims to address four key issues head on, strengthening its position in health and medicine, sustainable and alternative energy, critical mineral mining and processing, and computer chips. 

Support domestic production of critical medicines

 

  • A syndicate of public and private entities will jointly work towards manufacturing and onshoring of essential medical suppliers, beginning with a list of 50-100 “critical drugs” defined by the Food and Drug Administration. 
  • The consortium will be led by the Department of Health and Human Services, which will commit an initial $60m towards the development of a “novel platform technologies to increase domestic manufacturing capacity for API”. 
  • The aim is to increase domestic production and reduce the reliance upon global supply chains, particularly with regards to medications in short supply.


Secure an end-to-end domestic supply chain for advanced batteries

 

  • The Department of Energy will publish a ‘National Blueprint for Lithium Batteries’, beginning a 10 year plan to "develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America”. 
  • The effort will leverage billions in funding “to finance key strategic areas of development and fill deficits in the domestic supply chain capacity”. 


Invest in sustainable domestic and international production and processing of critical minerals

 

  • An interdepartmental group will be established by the Department of Interior to identify sites where critical minerals can be produced and processed within US borders. It will collaborate with businesses, states, tribal nations and stockholders to “expand sustainable, responsible critical minerals production and processing in the United States”. 
  • The group will also identify where regulations may need to be updated to ensure new mining and processing “meets strong standards”.


Partner with industry, allies, and partners to address semiconductor shortages

 

  • The Department of Commerce will increase its partnership with industry to support further investment in R&D and production of semiconductor chips. The White House says its aim will be to “facilitate information flow between semiconductor producers and suppliers and end-users”, improving transparency and data sharing. 
  • Enhanced relationships with foreign allies, including Japan and South Korea will also be strengthened with the express proposed of increasing chip output, promoting further investment in the sector and “to promote fair semiconductor chip allocations”. 
     

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