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When the pandemic started, most companies thought demand will go down for things like cars, etc so didn't place orders for semiconductors needed for things like

When the pandemic started, most companies thought demand will go down for things like cars, etc so didn't place orders for semiconductors needed for things like cars. Instead demand went up for devices used at home like laptops, webcams, etc. When companies order component, they don't buy on demand, but they order far ahead. So you might say something like, I want to buy 10million units of X in 6 months, or next year. The manufacturers operate at peak capacity already so they can't crank up output on demand. You give them enough time to be able to meet your needs. The companies that ordered say 1/3rd or 1/2 of what they needed realized they need more since the pandemic didn't slow sales down much. They went to order some more components and the manufacture says, "sorry! lead time is now 12 months" because they already got contracts with other folks. This of course is not a one supplier to one product problem, but possible across a chain of supplier/producer relationship. The organizations that saw there might be a supply problem earlier on, aggressively stocked up and bought up more than they needed which placed additional strain across the supply problem. The supply problem ends up cascading across industry. This is know as the bullwhip effect - https://en.wikipedia.org/wiki/Bullwhip_effect https://en.wikipedia.org/wiki/Bullwhip_effect. No one wants to invest in new plant because by the time it's done, the issue might be resolved and even if it's not, the plant might not return the ROI. That's how we ended up where we are.

nraynaud 6y ago
anyone knows the beer game from the Fifth Discipline?
SubiculumCode 6y ago
this is why I roll my eyes at anyone trying to deride the stimulus bill etc about worries about inflation. The supply shortages are temporary as expectation of lower demand did not come true....it is not a fundamental limitation of supply capacity...truly our capacity to supply products can be ramped up enormously and fairly quickly.
- totalZero 6y ago
  Fabbing older chips is not a particularly fruitful business for a startup, and the established players have their hands full. Some face water shortages. Others have suffered major factory fires. And all would need several months at a minimum in order to bring on more capacity. Part of the problem is that when the supply chain is long and fragile, a perturbation anywhere affects customers everywhere. Kulicke & Soffa has said that they're having trouble getting chips for their machines. That's problematic because they are a semiconductor equipment manufacturer. The result of shortage is that lead times get longer (not unlike how packets queue for a lossy channel), incentivizing chip customers to order more than they need. This, in turn, further constrains the market. The trailing edge lithography scanners don't get up to the 180 tons that an ASML EUV machine might weigh, but they're still large and you can't exactly get them with Amazon Prime two-day installation. Acer and AMD said the shortages would ease this year, but TSMC says they will continue to next year and Intel said yesterday that they think it will take a couple of years.
WanderPanda 6y ago
Thanks for bringing up the Bullwhip effect. Do you know about any format where one can get insights into the current state of the supply chain world? I don't get why podcasts and tv channels talk about all and everything 24/7 but never manage to pull up an interview with top tier supply chain/logistics/purchasing manager people. Why isn't this something that should be publicly debate?
- pjc50 6y ago
  Regular TV long since gave up on doing industrial coverage. There might be a bit of discussion in the specialist press e.g. EEtimes. There's no "push" demand by such people to get exposure, either; they're buying not selling, so they're not needing to market themselves.

nraynaud 6y ago

anyone knows the beer game from the Fifth Discipline?

SubiculumCode 6y ago

this is why I roll my eyes at anyone trying to deride the stimulus bill etc about worries about inflation. The supply shortages are temporary as expectation of lower demand did not come true....it is not a fundamental limitation of supply capacity...truly our capacity to supply products can be ramped up enormously and fairly quickly.

totalZero 6y ago
Fabbing older chips is not a particularly fruitful business for a startup, and the established players have their hands full. Some face water shortages. Others have suffered major factory fires. And all would need several months at a minimum in order to bring on more capacity. Part of the problem is that when the supply chain is long and fragile, a perturbation anywhere affects customers everywhere. Kulicke & Soffa has said that they're having trouble getting chips for their machines. That's problematic because they are a semiconductor equipment manufacturer. The result of shortage is that lead times get longer (not unlike how packets queue for a lossy channel), incentivizing chip customers to order more than they need. This, in turn, further constrains the market. The trailing edge lithography scanners don't get up to the 180 tons that an ASML EUV machine might weigh, but they're still large and you can't exactly get them with Amazon Prime two-day installation. Acer and AMD said the shortages would ease this year, but TSMC says they will continue to next year and Intel said yesterday that they think it will take a couple of years.

WanderPanda 6y ago

Thanks for bringing up the Bullwhip effect. Do you know about any format where one can get insights into the current state of the supply chain world? I don't get why podcasts and tv channels talk about all and everything 24/7 but never manage to pull up an interview with top tier supply chain/logistics/purchasing manager people. Why isn't this something that should be publicly debate?

pjc50 6y ago
Regular TV long since gave up on doing industrial coverage. There might be a bit of discussion in the specialist press e.g. EEtimes. There's no "push" demand by such people to get exposure, either; they're buying not selling, so they're not needing to market themselves.