5 ms·

You don't need to know what the pandemic is specifically to plan for a global market shock. Knowing that you have a critical component with a long inelastic sup

by lenzm 5y ago

You don't need to know what the pandemic is specifically to plan for a global market shock. Knowing that you have a critical component with a long inelastic supply chain is enough.

SahAssar 5y ago
I'm guessing the problem is to decide what is a reasonable difficulty. Even if you plan for a global market shock, how long do you plan for that to continue? How many companies failing in your supply chain do you plan for?
hef19898 5y ago
And then what? Just stockpile a year of everything? At every company along the supply chain? It is the first time in my life, professional in SCM and otherwise, that something like Covid and a global trade disruption happened together with a global shortage of one class of products. No way you for see or prepare for something like that. Hindsight in 20/20, just imagine the automotive OEMs would have gotten rid of the JIT for chips and Covid (and all the other things causing the shortages) wouldn't have affected chips but, say, certain raw materials like Aluminium.
- bsder 5y ago
  > And then what? Just stockpile a year of everything? Or run a fab. Fabless isn't a God-given right. Vertical integration is a thing. Vertical integration got a bad reputation because financial engineering dipshits like Carl Icahn would come in and strip mine your company for the single super profitable division and destroy the rest (see: Mesta Machinery).
  - hef19898 5y ago
    Sure, that's a solution. Or own one as subsidiary. Not sure if would have really helped so, there were decisions to order less. Reasonable to assume that production at the own fans would have been ramped down as well.
    - bsder 5y ago
      Sure, but your own fab will prioritize your own chips in the order that they need to. TI doesn't care about that 50 cent part that's holding up your ability to produce a car. They're going to run every chip first whose profit per chip is higher than yours. On the other hand, your own managers will have lots of incentive to produce that 50 cent chip if it is in the way of several thousand dollars of profit from selling a new vehicle. 200/150mm wafer at 180/150nm node fabs are not that expensive to run and maintain. But they have annual capex and MBA types don't like that. In addition, that fab probably won't compete well in the general market so it's effectively a captive fab. However, you'll have internal managers complaining that they have to use the internal chip which is more expensive than the one from TSMC because their bonus depends upon getting 5% cost savings next quarter and who the hell cares about keeping our fab filled so it's around when everything goes pear-shaped--that's somebody else's problem after I've been promoted and gone.
      - hef19898 5y ago
        Automotive suppliers pretty much care about 50 cent parts holding up OEMs, penalties are prohibitively high for a reason. An in-house fab is, as you said, probably more expensive. Simply because it has to rely on a single customer. Show me one company that is not looking at costs, one way or the other, that stays in business in the long run. Not doing so has, yes, something to do with savings on the procurement side (errors were made there as much as everywhere else). It also has something to do with long-term survival, and that does include jobs (even if that turned into a trope by now, there is some truth to it). Not every company can use VC money to bolster competitiveness, most have to compete on cost, and there every cent counts. Especially when we talk about high-volume products.
        bsder 5y ago
        > penalties are prohibitively high for a reason Which works, until your supplier is simply willing to go bankrupt. And you still have no chips and can't ship anything. > most have to compete on cost, and there every cent counts. Until you can't ship and everything grinds to a halt. Risk reduction has a cost and nobody is willing to pay it because it doesn't enter the balance sheet.
- Kliment 5y ago
  That's not the issue here. The issue is automotive are capricious, nasty customers. They know they're a big contract so they dictate disgusting terms, like 9 month payment terms and extremely strict delivery windows and changing deliveries on very short notice. Suppliers get fined at certain auto manufacturers for not delivering within a 15 minute window, forcing their truck drivers to circle around the facility for hours to ensure they can meet that. The carmakers require extreme delivery flexibility from their suppliers on short notice. In effect, they're still holding stock, but they're forcing their suppliers to hold it for them, and without said suppliers getting paid, or even having the ability to plan for how much they'll get paid. Because of those extremely hostile contract terms, the carmakers could just turn around and go "oh yeah, all that stock we said we'd order this year, you can make it if you like but we're not going to take deliveries or pay for it" which is what set this whole pile of bullshit in motion. At that point, their suppliers were holding and/or producing lots of stock for them, but got informed they would not be getting paid for it, had to cut their losses, and this ended up disrupting manufacturing for months as lines had to be reconfigured mid-batch and a lot of product got scrapped. While this was happening, the automotive fuckers changed their minds and requested more, meaning the suppliers had to scramble to produce with now limited resources because the scrapped stuff was still clogging the pipeline, so resources got redirected away from every other part. In short, religious JIT could only have this kind of impact here because the automotive companies are absolute shits to their suppliers and could force them to jump one way and then the other, causing disruption upstream which then spread downstream to everyone using electronics. This is a purely artificial crisis caused by the car manufacturers and is not an inevitable consequence of either the pandemic or the logistics disruption. Air cargo is barely affected and semiconductors and their precursors (except for water) are light and easily transportable by air, and certainly valuable enough that this does not impact their cost. This is a problem that would not have existed without the automotive industry, covid or no covid. They brought this upon themselves, and now everyone else is suffering (and auto execs go on TV and blame work-from-home and remote education for the shortage, which is just adding insult to injury). Screw them.
  - hef19898 5y ago
    Pretty sure 9 months payment terms are illegal in the EU, everything above 90 days is an issue already. Not defending the supplier squezzing that auto OEMs conduct. Also, trucks aren't circling around facilities, they are waiting at parking lots. Seriously, I don't know what kind of axe you have to grind with automotive and JIT. It does seem to be a larger issue if it is affecting all industries, and all companies. Chip shortages are affecting Aerospace, Google reportedly has issues getting chips as well for things like the Pixel 4a. Also I am not sure if you have hands on experience with SCM or procurement, automotive or otherwise.

by lenzm 5y ago

You don't need to know what the pandemic is specifically to plan for a global market shock. Knowing that you have a critical component with a long inelastic supply chain is enough.

SahAssar 5y ago

I'm guessing the problem is to decide what is a reasonable difficulty. Even if you plan for a global market shock, how long do you plan for that to continue? How many companies failing in your supply chain do you plan for?

hef19898 5y ago

And then what? Just stockpile a year of everything? At every company along the supply chain? It is the first time in my life, professional in SCM and otherwise, that something like Covid and a global trade disruption happened together with a global shortage of one class of products. No way you for see or prepare for something like that. Hindsight in 20/20, just imagine the automotive OEMs would have gotten rid of the JIT for chips and Covid (and all the other things causing the shortages) wouldn't have affected chips but, say, certain raw materials like Aluminium.

bsder 5y ago
> And then what? Just stockpile a year of everything? Or run a fab. Fabless isn't a God-given right. Vertical integration is a thing. Vertical integration got a bad reputation because financial engineering dipshits like Carl Icahn would come in and strip mine your company for the single super profitable division and destroy the rest (see: Mesta Machinery).
- hef19898 5y ago
  Sure, that's a solution. Or own one as subsidiary. Not sure if would have really helped so, there were decisions to order less. Reasonable to assume that production at the own fans would have been ramped down as well.
  - bsder 5y ago
    Sure, but your own fab will prioritize your own chips in the order that they need to. TI doesn't care about that 50 cent part that's holding up your ability to produce a car. They're going to run every chip first whose profit per chip is higher than yours. On the other hand, your own managers will have lots of incentive to produce that 50 cent chip if it is in the way of several thousand dollars of profit from selling a new vehicle. 200/150mm wafer at 180/150nm node fabs are not that expensive to run and maintain. But they have annual capex and MBA types don't like that. In addition, that fab probably won't compete well in the general market so it's effectively a captive fab. However, you'll have internal managers complaining that they have to use the internal chip which is more expensive than the one from TSMC because their bonus depends upon getting 5% cost savings next quarter and who the hell cares about keeping our fab filled so it's around when everything goes pear-shaped--that's somebody else's problem after I've been promoted and gone.
    - hef19898 5y ago
      Automotive suppliers pretty much care about 50 cent parts holding up OEMs, penalties are prohibitively high for a reason. An in-house fab is, as you said, probably more expensive. Simply because it has to rely on a single customer. Show me one company that is not looking at costs, one way or the other, that stays in business in the long run. Not doing so has, yes, something to do with savings on the procurement side (errors were made there as much as everywhere else). It also has something to do with long-term survival, and that does include jobs (even if that turned into a trope by now, there is some truth to it). Not every company can use VC money to bolster competitiveness, most have to compete on cost, and there every cent counts. Especially when we talk about high-volume products.
      - bsder 5y ago
        > penalties are prohibitively high for a reason Which works, until your supplier is simply willing to go bankrupt. And you still have no chips and can't ship anything. > most have to compete on cost, and there every cent counts. Until you can't ship and everything grinds to a halt. Risk reduction has a cost and nobody is willing to pay it because it doesn't enter the balance sheet.
Kliment 5y ago
That's not the issue here. The issue is automotive are capricious, nasty customers. They know they're a big contract so they dictate disgusting terms, like 9 month payment terms and extremely strict delivery windows and changing deliveries on very short notice. Suppliers get fined at certain auto manufacturers for not delivering within a 15 minute window, forcing their truck drivers to circle around the facility for hours to ensure they can meet that. The carmakers require extreme delivery flexibility from their suppliers on short notice. In effect, they're still holding stock, but they're forcing their suppliers to hold it for them, and without said suppliers getting paid, or even having the ability to plan for how much they'll get paid. Because of those extremely hostile contract terms, the carmakers could just turn around and go "oh yeah, all that stock we said we'd order this year, you can make it if you like but we're not going to take deliveries or pay for it" which is what set this whole pile of bullshit in motion. At that point, their suppliers were holding and/or producing lots of stock for them, but got informed they would not be getting paid for it, had to cut their losses, and this ended up disrupting manufacturing for months as lines had to be reconfigured mid-batch and a lot of product got scrapped. While this was happening, the automotive fuckers changed their minds and requested more, meaning the suppliers had to scramble to produce with now limited resources because the scrapped stuff was still clogging the pipeline, so resources got redirected away from every other part. In short, religious JIT could only have this kind of impact here because the automotive companies are absolute shits to their suppliers and could force them to jump one way and then the other, causing disruption upstream which then spread downstream to everyone using electronics. This is a purely artificial crisis caused by the car manufacturers and is not an inevitable consequence of either the pandemic or the logistics disruption. Air cargo is barely affected and semiconductors and their precursors (except for water) are light and easily transportable by air, and certainly valuable enough that this does not impact their cost. This is a problem that would not have existed without the automotive industry, covid or no covid. They brought this upon themselves, and now everyone else is suffering (and auto execs go on TV and blame work-from-home and remote education for the shortage, which is just adding insult to injury). Screw them.
- hef19898 5y ago
  Pretty sure 9 months payment terms are illegal in the EU, everything above 90 days is an issue already. Not defending the supplier squezzing that auto OEMs conduct. Also, trucks aren't circling around facilities, they are waiting at parking lots. Seriously, I don't know what kind of axe you have to grind with automotive and JIT. It does seem to be a larger issue if it is affecting all industries, and all companies. Chip shortages are affecting Aerospace, Google reportedly has issues getting chips as well for things like the Pixel 4a. Also I am not sure if you have hands on experience with SCM or procurement, automotive or otherwise.