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OM in the News: The Chip Shortage Is Far-Reaching

May 2, 2021

The global chip shortage hobbled auto makers world-wide. Now, other industries are feeling the squeeze, reports The Wall Street Journal (May 1-2, 2021).

It has hit makers of home appliances, heavy-equipment, servers and boats. It is confounding multinationals to startups. Even companies that don’t use chips as their core business, such as freight operators and retailers, find themselves affected. The scarcity means higher price tags for consumers, longer waits for goods, empty store shelves and swaths of the business world racing to secure whatever supply they can. Chip makers can’t keep pace, driving up prices for parts, thinning out supply and spurring panic buying. 

chips

They have also contributed to escalations in the cost of raw materials for electronic goods in recent months. An index measuring the price of inputs for electronics companies in March soared to the highest level recorded in more than two decades. 

The chip crunch has spared few companies, even some tech giants that were mass buying to cushion themselves from the U.S.-China trade fight. Microsoft’s hardware sales were dented by the shortage. Apple is seeing sales fall, particularly among its tablets and laptops. Strained chip supplies have pushed Whirlpool to switch production lines frequently, enabling it to churn out various products based on which components are on hand that day. Microcontrollers—an inexpensive chip used widely in electronic devices—are almost nowhere to be found.

Many semiconductors cost less than a can of soda. But they are an important manufacturing component for 12% of the U.S. GDP, and reduced supply can boost prices for some categories of products by as much as 3%. Semiconductors are a $442 billion industry. Total semiconductor unit shipments are expected to increase 13% this year to a record 1.13 trillion units. Intel’s CEO said this week that a global chip-supply shortage could stretch 2 more years.

Classroom discussion questions:

1.What can operations managers do to protect their supply chains?

2. How did this shortage, especially in the auto industry, occur?

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