7 ms·

It’s strange that this happened. Did COVID just cause everyone to stop investing for a bit, leading to all these downstream problems? Or was this gonna happen a

It’s strange that this happened. Did COVID just cause everyone to stop investing for a bit, leading to all these downstream problems? Or was this gonna happen anyway?

cronix 5y ago
Let's say that all Banana growers were shut down for 8 months and during that time all existing supply was bought up that were sitting on store shelves. After they were allowed to start growing again, how long until you see a Banana in your local store? You better be there when they arrive, because everyone else who has been wanting Bananas is waiting too. On top of that, can the Banana grower even get all of the items needed to grow the same sized crop as last year? All of the fertilizers, etc.? Those companies have been shut down during this time too. Oh, you're not the only company who needs those exact same supplies and the Potato farmer down the road is trying to purchase it too? After you've grimaced that the price has risen due to short supply and you had to source the items from 3x as many suppliers as you used to, now, you're relieved that your Bananas are almost done growing. You call the trucking company to deliver them to the distributor, who you learn is short staffed and prices have risen in order to attract truckers who are now in short supply, and factor in the gas price increases. Every single segment of the economy that the Banana grower relied on is going through the same thing, at the same time. Making chips is several orders of magnitude harder/more complex than growing Bananas. Think about how many different companies products must be purchased to make a wafer. How many different highly specialized chemicals are used in addition to solid materials? If any single one of them is having supply or labor issues...
- nostrademons 5y ago
  Also imagine that there are no truck drivers to drive the bananas from the plantations to your local stores, and no ships to bring fertilizer to the banana plantations. Even when they start growing again, it's going to be a while before you can get one. Supply chains in general are in shambles. We had mass COVID outbreaks at the ports that shut down unloading, as well as outbreaks at see. Truck drivers are quitting because it ain't worth their while anymore. Countries closed their borders. Patterns of consumer demand changed, so all the containers got stuck in North America. Chips are the most obvious manifestation of this because the supply chains for them are long and complex, but we're going to see it in many other products as well once inventory buffers run out.
  - vkou 5y ago
    Countries have closed their borders to casual travel, but not to shipping.
    - thehappypm 5y ago
      China, notably, closes ports to end outbreaks.
  - avs733 5y ago
    Chips are also obvious because they are a discrete thing that is at the end of one long supply chain and then beginning of other long supply chains.
  - mschuster91 5y ago
    > Also imagine that there are no truck drivers to drive the bananas from the plantations to your local stores, and no ships to bring fertilizer to the banana plantations. In the UK, the situation is even worse: because there is an acute shortage of truckers to truck pigs from farms to slaughterhouses and a lack of butchers, 100k pigs are set to be killed and burned - they simply grow each day, and butchers have limits on how big/heavy the pigs may be: https://www.dailymail.co.uk/news/article-9958663/Farms-set-kill-burn-100-000-pigs-post-Brexit-butchers-shortage.html https://www.dailymail.co.uk/news/article-9958663/Farms-set-k... Turns out, no one but immigrants wanting to send or set aside money for their home country wants to do the job for the wage the companies are paying. And companies can't pay better wages because customers are conditioned on cheap meat. And politicians haven't done anything to curb that because tolerating rising food prices is one of the fastest ways of not getting reelected. Brexit really hit at the worst possible time, and now innocent pigs have to suffer for society's failures. What a damn tragic waste.
    - jaywalk 5y ago
      > now innocent pigs have to suffer for society's failures. They were going to be killed no matter what. I don't think it matters much to the pig what happens after it's dead.
- stagger87 5y ago
  Don't forget people panic buying extra bananas so they have inventory in case banana production shuts down again.
  - contingencies 5y ago
    This is now the main problem.
- joe_the_user 5y ago
  Let's say that all Banana growers were shut down for 8 months and during that time all existing supply was bought up that were sitting on store shelves. -- But chip manufacturers didn't shut down. That's even close to the immediate cause, which was that the anticipation of changed future demand on the part of other manufacturers lead to them decreasing and change future orders. If you're going to ELI5("explain this to me like a five year old"), at least give some reasonably analogous situation, jeesh. I mean, I think people understand that supply takes some time to catch up with demand when you have a complex, interdependent economy. But the adjustment to this shock has taken longer than seems reasonable or seems like happened in the past so more data than X has to adjust for Y which has to adjust for Z is appropriate.
  - vidanay 5y ago
    A closer analogy might be that all of the banana growers were told they should grow mangos, so the plowed under the banana trees and planted mangos.
  - detaro 5y ago
    Not that massively, but various plants had to shut down at various times, which really isn't helping matters. It's not just "misjudged demand", that would be relatively easy to fix or be limited to few sectors if everything otherwise ran at needed capacity.
  - MarkSweep 5y ago
    Some fabs did shutdown this year. One in Japan due to a fire and some in Texas due to power loss. I think both are back up and running, but it did not help to lose production. https://www.taipeitimes.com/News/biz/archives/2021/03/30/2003754719 https://www.taipeitimes.com/News/biz/archives/2021/03/30/200... https://www.statesman.com/story/business/2021/04/30/austin-fab-shutdown-during-texas-freeze-cost-samsung-millions/4891405001/ https://www.statesman.com/story/business/2021/04/30/austin-f...
    - vkou 5y ago
      I'd expect these shutdowns to be more-or-less randomly distributed across calendar years[1], and in aggregate, accounted for, on a macro level, in supply/demand projections. [1] The examples you cited suffer from confirmation bias - a plant shutting down due to a fire when there isn't already a chip shortage, would not really make the news. And if it did, you wouldn't be actively looking for it!
- throwaway894345 5y ago
  I don't think it's that the fabs were shut down because of covid, but rather because automotive manufacturers (and presumably others) forecasted record low sales for 2020 and canceled all of their chip orders such that chip suppliers and upstream fabs had to lay off staff and so on. As I understand it, this was what reduced fab capacity, not "fabs were closing to avoid the risk of covid". On the flip side, rather than demand decreasing as auto manufacturers expected, it actually spiked, and automotive manufacturers demanded more chips and were willing to pay $$$ for it. So other industries that use chips and accurately forecasted their demand were now bidding against automotive manufacturers for that fab capacity.
  - brendoelfrendo 5y ago
    Auto makers and others are part of the problems with forecasted demand, but there are also larger supply chain issues. Basically every part of the industry, going back to raw materials, is having similar shortages; either because people shut down for COVID or because they, too, underestimated demand during the pandemic.
    - throwaway894345 5y ago
      I suspect it has a lot more to do with failing to properly forecast in general, whether overestimation or underestimation. Supply chains are finely tuned for life as usual and they take a long time to recalibrate.
- TrispusAttucks 5y ago
  I was contemplating the shortages the other night while sitting around a fire. It hit me that the problem is the whole global system is now just one big Just-In-Time (JIT) system built from smaller JIT units of industry which is a collection of yet more JIT factories. It's JIT all the way down! And JIT doesn't work well when the spice isn't continuously flowing.
fidesomnes 5y ago
Supply change disruption before a major war.
davidw 5y ago
IIRC, some industries did stop or slow investing, foreseeing a dip in the economy. The dip proved to be briefer than expected though, which is good, but left people scrambling for inventory. The guy who runs my local bike shop is saying they still won't have enough bikes next year.
- danielodievich 5y ago
  I just came back empty handed from bike shop trying to buy some spare tubes. No supply. I better not get too many flats!
  - davidw 5y ago
    If it's a MTB or gravel bike you may want to invest in a tubeless setup.
    - frenchy 5y ago
      A tubless setup definitely requires some supplies as as well.
joe_the_user 5y ago
What I see as explanations of the chip shortage is a combination of factors. One immediate cause was that some manufacturers reduced their chip orders month in advance since they expected less demand but then the demand didn't decrease and they had to scramble, increasing general demand. Another immediate cause was that Covid has made some production lines shutdown or become unreliable. But the reason that now a year or more on, we have problems, seems require more explaining. Larger causes I've heard; The chip supply chain is extremely long, long enough so you get a whipsaw effect or anti-whipsaw effect. A whipsaw effect means by the time demand catches up with supply, it goes beyond it and manufacturers lose money. But what seems to be happening is an anti-whipsaw effect - suppliers are avoiding any panic measures to catch up with demand and so lose money but this means the catching up is a long process. This is something of a product of a highly capital intensive economy pushing manufacturers to only produce, invest and consume in a narrow range. Limiting investment in capital equipment is a way to make the investment you make is 100% utilized. Limiting consumption to the lowest priced items is a way to make sure all of your production is profitable. It seems like a new phenomena. Instead of a "deflationary spiral" these factors pushed to their extreme could result in a "decreasing production spiral" where physical continually declines despite demand. We're not there yet, of course but it seems like an interesting economic phenomena.
burnte 5y ago
It's poorly implemented JIT. People simplified Just In Time to mena "no inventory" and then when a disruption hit, it echoed up and down supply chains. JIT doesn't mean no inventory, it means managing inventory and your supply chain to ensure adequate iventory based on needs both current and forseen. One car example, you should ensure you have 4 times as many tires available as you do cars, because an imbalance there becomes either a constraint (too few tires) or a waste (too many tires). But it's not JUST making those numbers match, you have to forecast, how many cars and I going to build, are my supplies for the cars ok, look at normal fluctuations, and then also look at potential supply chain FAILURES and plan for them. Maybe it's easy to get brake pads but the lead time on tires is 4 months. Well then, I don't need to stock as many brake pads in case of a disruption, but I should definitely have enough tires to carry me through a potential disruption (maybe not 4 months worth, maybe I stock 2 and slow down car production, or something). All these companies kept their shelves bare, and when some companies slowed orders, they didn't stop to think that the manufacturers they bought from would look for other customers to take up capacity. They acted like TSMC would sit there by the phone waiting for some customer to come back. No, they're in the business of selling chips, not in the business of servicing DumbCorp. No one planned for what might happen if they stopped ordering parts, they just expected the capacity to be there. I'm bringing 6 new sites online this year, and a 7th early in the new year. I just bought a bunch of network equipment for not just our existing sites, but the 7 to come. I looked at supply chain issues, and said to my CFO, this inventory is going to sit here for 6 months, but we get a larger quantity discount, and we'll get the new sites online faster and not worry about getting this equipment if we buy now. We COULD have saved that money now, but the advantages of having it when we need it is greater than having that money in the bank for 6 more months. JIT means planning ahead, not just micromanaging inventory. Too many MBAs don't get that.
- runawaybottle 5y ago
  Your description doesn’t sound too different (if at all) from the face mask/ventilator shortage at the start of the pandemic. We didn’t stock up, and everyone tried to JIT purchase the necessary equipment. Maybe we all have something to learn from Doomsday preppers.
philg_jr 5y ago
The developer of the O.MG cable has a good Twitter thread describing the issues. https://twitter.com/_mg_/status/1388321639524229120?s=21 https://twitter.com/_mg_/status/1388321639524229120?s=21
- engineer_22 5y ago
  Unrolled thread: https://threadreaderapp.com/thread/1388321639524229120.html https://threadreaderapp.com/thread/1388321639524229120.html
  - contingencies 5y ago
    This is a pretty good summary. Note on interpretation: it links to people expressing surprise about 12 months after the shit had hit the fan. IMHO a strong mitigation strategy includes (1) have control of your designs (be responsive to your business environment) (2) minimize vendor-specific components (replace sexy ICs with stock-components where possible) (3) keep tested alternatives on the books for major components (redundant supply chain) (4) cache parts where necessary
xadhominemx 5y ago
The main thing, particularly for ABF substrates, is that remote work drove PC volumes way higher than anyone thought.
xyzzy21 5y ago
Chip investment was already down-shifted in 2019 because it was a down year based on historical semiconductor cycles. Then COVID triggered a collapse of nearly all JIT supply chains (not just medical). Try getting ANY industrial or consumer product - the supply chains are all broken right now. Some of this is China intentionally fxcking us. Some of it is over dependence on outsourcing. Most is due to inherent instability of JIT as a fundamental flaw that's long been ignored. Many supply chains have both short and long feedback loops to themselves. For example ALL the equipment required to increase semiconductor capacity always require the very same semiconductor supply chain capacity (chip making requires chips being made).
dhenneberger 5y ago
It's a demand shock.
ec109685 5y ago
There's also the stimulus that injected demand into the system, so more goods may purchased than if COVID never happpened.

It’s strange that this happened. Did COVID just cause everyone to stop investing for a bit, leading to all these downstream problems? Or was this gonna happen anyway?

cronix 5y ago

Let's say that all Banana growers were shut down for 8 months and during that time all existing supply was bought up that were sitting on store shelves. After they were allowed to start growing again, how long until you see a Banana in your local store? You better be there when they arrive, because everyone else who has been wanting Bananas is waiting too. On top of that, can the Banana grower even get all of the items needed to grow the same sized crop as last year? All of the fertilizers, etc.? Those companies have been shut down during this time too. Oh, you're not the only company who needs those exact same supplies and the Potato farmer down the road is trying to purchase it too? After you've grimaced that the price has risen due to short supply and you had to source the items from 3x as many suppliers as you used to, now, you're relieved that your Bananas are almost done growing. You call the trucking company to deliver them to the distributor, who you learn is short staffed and prices have risen in order to attract truckers who are now in short supply, and factor in the gas price increases. Every single segment of the economy that the Banana grower relied on is going through the same thing, at the same time. Making chips is several orders of magnitude harder/more complex than growing Bananas. Think about how many different companies products must be purchased to make a wafer. How many different highly specialized chemicals are used in addition to solid materials? If any single one of them is having supply or labor issues...

nostrademons 5y ago
Also imagine that there are no truck drivers to drive the bananas from the plantations to your local stores, and no ships to bring fertilizer to the banana plantations. Even when they start growing again, it's going to be a while before you can get one. Supply chains in general are in shambles. We had mass COVID outbreaks at the ports that shut down unloading, as well as outbreaks at see. Truck drivers are quitting because it ain't worth their while anymore. Countries closed their borders. Patterns of consumer demand changed, so all the containers got stuck in North America. Chips are the most obvious manifestation of this because the supply chains for them are long and complex, but we're going to see it in many other products as well once inventory buffers run out.
- vkou 5y ago
  Countries have closed their borders to casual travel, but not to shipping.
  - thehappypm 5y ago
    China, notably, closes ports to end outbreaks.
- avs733 5y ago
  Chips are also obvious because they are a discrete thing that is at the end of one long supply chain and then beginning of other long supply chains.
- mschuster91 5y ago
  > Also imagine that there are no truck drivers to drive the bananas from the plantations to your local stores, and no ships to bring fertilizer to the banana plantations. In the UK, the situation is even worse: because there is an acute shortage of truckers to truck pigs from farms to slaughterhouses and a lack of butchers, 100k pigs are set to be killed and burned - they simply grow each day, and butchers have limits on how big/heavy the pigs may be: https://www.dailymail.co.uk/news/article-9958663/Farms-set-kill-burn-100-000-pigs-post-Brexit-butchers-shortage.html https://www.dailymail.co.uk/news/article-9958663/Farms-set-k... Turns out, no one but immigrants wanting to send or set aside money for their home country wants to do the job for the wage the companies are paying. And companies can't pay better wages because customers are conditioned on cheap meat. And politicians haven't done anything to curb that because tolerating rising food prices is one of the fastest ways of not getting reelected. Brexit really hit at the worst possible time, and now innocent pigs have to suffer for society's failures. What a damn tragic waste.
  - jaywalk 5y ago
    > now innocent pigs have to suffer for society's failures. They were going to be killed no matter what. I don't think it matters much to the pig what happens after it's dead.
stagger87 5y ago
Don't forget people panic buying extra bananas so they have inventory in case banana production shuts down again.
- contingencies 5y ago
  This is now the main problem.
joe_the_user 5y ago
Let's say that all Banana growers were shut down for 8 months and during that time all existing supply was bought up that were sitting on store shelves. -- But chip manufacturers didn't shut down. That's even close to the immediate cause, which was that the anticipation of changed future demand on the part of other manufacturers lead to them decreasing and change future orders. If you're going to ELI5("explain this to me like a five year old"), at least give some reasonably analogous situation, jeesh. I mean, I think people understand that supply takes some time to catch up with demand when you have a complex, interdependent economy. But the adjustment to this shock has taken longer than seems reasonable or seems like happened in the past so more data than X has to adjust for Y which has to adjust for Z is appropriate.
- vidanay 5y ago
  A closer analogy might be that all of the banana growers were told they should grow mangos, so the plowed under the banana trees and planted mangos.
- detaro 5y ago
  Not that massively, but various plants had to shut down at various times, which really isn't helping matters. It's not just "misjudged demand", that would be relatively easy to fix or be limited to few sectors if everything otherwise ran at needed capacity.
- MarkSweep 5y ago
  Some fabs did shutdown this year. One in Japan due to a fire and some in Texas due to power loss. I think both are back up and running, but it did not help to lose production. https://www.taipeitimes.com/News/biz/archives/2021/03/30/2003754719 https://www.taipeitimes.com/News/biz/archives/2021/03/30/200... https://www.statesman.com/story/business/2021/04/30/austin-fab-shutdown-during-texas-freeze-cost-samsung-millions/4891405001/ https://www.statesman.com/story/business/2021/04/30/austin-f...
  - vkou 5y ago
    I'd expect these shutdowns to be more-or-less randomly distributed across calendar years[1], and in aggregate, accounted for, on a macro level, in supply/demand projections. [1] The examples you cited suffer from confirmation bias - a plant shutting down due to a fire when there isn't already a chip shortage, would not really make the news. And if it did, you wouldn't be actively looking for it!
throwaway894345 5y ago
I don't think it's that the fabs were shut down because of covid, but rather because automotive manufacturers (and presumably others) forecasted record low sales for 2020 and canceled all of their chip orders such that chip suppliers and upstream fabs had to lay off staff and so on. As I understand it, this was what reduced fab capacity, not "fabs were closing to avoid the risk of covid". On the flip side, rather than demand decreasing as auto manufacturers expected, it actually spiked, and automotive manufacturers demanded more chips and were willing to pay $$$ for it. So other industries that use chips and accurately forecasted their demand were now bidding against automotive manufacturers for that fab capacity.
- brendoelfrendo 5y ago
  Auto makers and others are part of the problems with forecasted demand, but there are also larger supply chain issues. Basically every part of the industry, going back to raw materials, is having similar shortages; either because people shut down for COVID or because they, too, underestimated demand during the pandemic.
  - throwaway894345 5y ago
    I suspect it has a lot more to do with failing to properly forecast in general, whether overestimation or underestimation. Supply chains are finely tuned for life as usual and they take a long time to recalibrate.
TrispusAttucks 5y ago
I was contemplating the shortages the other night while sitting around a fire. It hit me that the problem is the whole global system is now just one big Just-In-Time (JIT) system built from smaller JIT units of industry which is a collection of yet more JIT factories. It's JIT all the way down! And JIT doesn't work well when the spice isn't continuously flowing.

fidesomnes 5y ago

Supply change disruption before a major war.

davidw 5y ago

IIRC, some industries did stop or slow investing, foreseeing a dip in the economy. The dip proved to be briefer than expected though, which is good, but left people scrambling for inventory. The guy who runs my local bike shop is saying they still won't have enough bikes next year.

danielodievich 5y ago
I just came back empty handed from bike shop trying to buy some spare tubes. No supply. I better not get too many flats!
- davidw 5y ago
  If it's a MTB or gravel bike you may want to invest in a tubeless setup.
  - frenchy 5y ago
    A tubless setup definitely requires some supplies as as well.

joe_the_user 5y ago

What I see as explanations of the chip shortage is a combination of factors. One immediate cause was that some manufacturers reduced their chip orders month in advance since they expected less demand but then the demand didn't decrease and they had to scramble, increasing general demand. Another immediate cause was that Covid has made some production lines shutdown or become unreliable. But the reason that now a year or more on, we have problems, seems require more explaining. Larger causes I've heard; The chip supply chain is extremely long, long enough so you get a whipsaw effect or anti-whipsaw effect. A whipsaw effect means by the time demand catches up with supply, it goes beyond it and manufacturers lose money. But what seems to be happening is an anti-whipsaw effect - suppliers are avoiding any panic measures to catch up with demand and so lose money but this means the catching up is a long process. This is something of a product of a highly capital intensive economy pushing manufacturers to only produce, invest and consume in a narrow range. Limiting investment in capital equipment is a way to make the investment you make is 100% utilized. Limiting consumption to the lowest priced items is a way to make sure all of your production is profitable. It seems like a new phenomena. Instead of a "deflationary spiral" these factors pushed to their extreme could result in a "decreasing production spiral" where physical continually declines despite demand. We're not there yet, of course but it seems like an interesting economic phenomena.

burnte 5y ago

It's poorly implemented JIT. People simplified Just In Time to mena "no inventory" and then when a disruption hit, it echoed up and down supply chains. JIT doesn't mean no inventory, it means managing inventory and your supply chain to ensure adequate iventory based on needs both current and forseen. One car example, you should ensure you have 4 times as many tires available as you do cars, because an imbalance there becomes either a constraint (too few tires) or a waste (too many tires). But it's not JUST making those numbers match, you have to forecast, how many cars and I going to build, are my supplies for the cars ok, look at normal fluctuations, and then also look at potential supply chain FAILURES and plan for them. Maybe it's easy to get brake pads but the lead time on tires is 4 months. Well then, I don't need to stock as many brake pads in case of a disruption, but I should definitely have enough tires to carry me through a potential disruption (maybe not 4 months worth, maybe I stock 2 and slow down car production, or something). All these companies kept their shelves bare, and when some companies slowed orders, they didn't stop to think that the manufacturers they bought from would look for other customers to take up capacity. They acted like TSMC would sit there by the phone waiting for some customer to come back. No, they're in the business of selling chips, not in the business of servicing DumbCorp. No one planned for what might happen if they stopped ordering parts, they just expected the capacity to be there. I'm bringing 6 new sites online this year, and a 7th early in the new year. I just bought a bunch of network equipment for not just our existing sites, but the 7 to come. I looked at supply chain issues, and said to my CFO, this inventory is going to sit here for 6 months, but we get a larger quantity discount, and we'll get the new sites online faster and not worry about getting this equipment if we buy now. We COULD have saved that money now, but the advantages of having it when we need it is greater than having that money in the bank for 6 more months. JIT means planning ahead, not just micromanaging inventory. Too many MBAs don't get that.

runawaybottle 5y ago
Your description doesn’t sound too different (if at all) from the face mask/ventilator shortage at the start of the pandemic. We didn’t stock up, and everyone tried to JIT purchase the necessary equipment. Maybe we all have something to learn from Doomsday preppers.

philg_jr 5y ago

The developer of the O.MG cable has a good Twitter thread describing the issues. https://twitter.com/_mg_/status/1388321639524229120?s=21 https://twitter.com/_mg_/status/1388321639524229120?s=21

engineer_22 5y ago
Unrolled thread: https://threadreaderapp.com/thread/1388321639524229120.html https://threadreaderapp.com/thread/1388321639524229120.html
- contingencies 5y ago
  This is a pretty good summary. Note on interpretation: it links to people expressing surprise about 12 months after the shit had hit the fan. IMHO a strong mitigation strategy includes (1) have control of your designs (be responsive to your business environment) (2) minimize vendor-specific components (replace sexy ICs with stock-components where possible) (3) keep tested alternatives on the books for major components (redundant supply chain) (4) cache parts where necessary

xadhominemx 5y ago

The main thing, particularly for ABF substrates, is that remote work drove PC volumes way higher than anyone thought.

xyzzy21 5y ago

Chip investment was already down-shifted in 2019 because it was a down year based on historical semiconductor cycles. Then COVID triggered a collapse of nearly all JIT supply chains (not just medical). Try getting ANY industrial or consumer product - the supply chains are all broken right now. Some of this is China intentionally fxcking us. Some of it is over dependence on outsourcing. Most is due to inherent instability of JIT as a fundamental flaw that's long been ignored. Many supply chains have both short and long feedback loops to themselves. For example ALL the equipment required to increase semiconductor capacity always require the very same semiconductor supply chain capacity (chip making requires chips being made).

dhenneberger 5y ago

It's a demand shock.

ec109685 5y ago

There's also the stimulus that injected demand into the system, so more goods may purchased than if COVID never happpened.