A Chip is Not a Chip

Podcast Series: Finish Strong® – Fulcrum ConsultingWorks Inc.

In 2019 manufacturers were struggling to onboard and retain important workers, to obtain supplies when needed, and to meet the level of performance that customers demand.

And then Covid hit.

“It’s the supply chain” became the phrase to indicate the problems are out of our control. It meant “don’t expect a good answer from us” and “don’t expect on-time in-full deliveries.”

Packaging, whether plastic or metal or even treated cloth, was in short supply. At least in the size and configuration some needed.

We all remember the toilet paper shortage, but how many understand that it due to a shift in demand from industrial to residential? The materials, production processes, packaging and shipping are very different for the two sources of demand.

Chips continue to reflect inadequate supply; at least a few do. But others are in such surplus that major producers like Intel are laying off and putting the brakes on production as customers admit to hording and cancel the huge orders they had on the books.

That industry — the electronic parts industry in general — has long been known for these huge swings. Those historical swings have been for very similar reasons. Rapidly increasing demand that can’t be met; skyrocketing orders; skyrocketing production; and then cancelled over-ordering, and plummeting production. Because capacity cannot be quickly and smoothly adjusted in those industries, wild swings are simply “the way it is.”

While leadership concentrates on the strategic level, execution requires attention to detail.

In conditions of multiple challenges confronting us simultaneously, we tend to simplify by relying on stereotypes, or generalities, that have no real meaning in execution.

“Chips are in short supply” or “plastics are in short supply” has little meaning at the detail level. There, the detail matters greatly. The strategic decisions of suppliers matter greatly.

Leaders can help those involved in execution understand supplier strategies, talk with suppliers to better understand and perhaps shape those strategies, and think more strategically about how to manage any shortages. Expediting is NOT the answer.

For decades manufacturers have maintained excess inventories of most items so they would always be able to produce something, but they have also been short one key component or material regardless. The excess inventories did little to quickly meet customer demand. The current return to “send me all you’ve got” will only take us back to prior conditions.

Bills of material (BOMs) must be considered as a whole to effectively plan production. Analytics and accurate inventories, customer orders and even routings can enable optimization of output and honest communication with suppliers and customers.

Expecting those in charge of near term planning and execution to optimize in their heads is ridiculous. Help them have the information they need, which is beyond mere data. That requires investment in technology far different from simple MRP calculations.

Ask operations staff to explain the specific causes of any shortages — geographic, processing, logistics, etc — so you can help them think strategically about how to best leverage limited critical resources.

During Covid, most of our supply chains operated just as they were designed.

Poorly.

Understanding sensitivities, variation in both signal and noise, and risk elements from global to a local bridge closing, is part of supply chain management.

Issuing purchase orders is a task. Expediting is a task. Neither will resolve your current production problems. Motion and results are two entirely different things.

A chip is not a chip.

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