APU Business Original

Microchip Shortage: A Classic Case of Supply and Demand

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Nowadays, delays abound for acquiring any type of electronic device, ranging from home appliances to vehicles to televisions. What’s more disconcerting is that non-technical devices that depend on electronic data information (EDI) systems and use microchips are also affected.

Who’s the culprit? Pandemic delays have multiplied over the past 18 months, and a global microchip shortage is largely to blame for the delays.

Microchip Delays Started in 2020

The global shortage of microchips began when the COVID-19 pandemic dramatically increased the demand for technology required by work-from-home employees in early 2020. The shortage can be explained by a simple logistics term called “supply and demand.”

Supply and demand have an inverse relationship. As supplies dwindle, demand increases; likewise, when supplies surge, demand decreases.

At the beginning of the pandemic, the demand for semiconductors, a key component of microchips, decreased significantly as companies curtailed operations and staffing to stay afloat. At the same time, millions of workers who became homebound started buying more devices that relied on microchips – TVs, cameras, infotainment systems, security devices, laptops and home appliances. This caused a supply imbalance that drove up the demand for them.

As people limited their entertainment and travel, they saved money. For some, it was a perfect opportunity to combine low interest rates and new sources of income such as stimulus checks to make big purchases.

As a result, the demand for products that rely on microchips skyrocketed. In cases where microchip supply was low, the result was long waiting times for products that depended on microchips.

Delivery dates were extended by as much as an additional four months for some items. In other cases, delivery dates are now projected into early 2022.

A Dearth of Microchips Has Had a Domino Effect on the Economy

The dearth of microchips has had a domino effect in the economy. For example, as an auto dealer in Grandview, Texas, explained, “When the pandemic hit in early 2020, the auto manufacturers, supply chain managers all cut their orders off from the semiconductor business.” 

The reason they did, he said, was semiconductors cost $10 to $12 apiece and there are about 3,000 of them in every car.

“And when the people stayed at home, they bought new TV sets, new computers, new laptops, new Gameboys, new PlayStations – and those took priority at the chips supply companies,” he added. “And when the manufacturers were ready to get back into it for the autos, they were in the bottom of the line.”

With most microchips imported from China, the microchip shortage will likely continue into 2022, with no signs yet of production in Asia picking up again any time soon. As an example, General Motors will halt most North American production of its 2021 Chevy Silverado and 2021 GMC Sierra full-size pickups. Auto plants in Michigan, Indiana and Mexico will be temporarily idled. Production is expected to resume in early August.

The Unforeseen Side Effects of Microchip Shortage

There are also unforeseen effects of the microchip shortage. First, there has been a surge in used car purchases (if you are trading in a vehicle, you may get more bang for your buck now). Likewise, people in a rush to purchase a new or leased car are doing so sight unseen, which means vehicles are being sold before they are even delivered to the dealership. In addition, people who are driving their cars for longer periods of time are spending more money on maintenance, which adds to a dealership’s profit for parts and service, but also adds to the demand for microchips.

Another side effect now that demand has increased is the need to hire more people to manufacture electronic products. Companies are offering signing bonuses, higher hourly wages and even more vacation time to entice workers into key manufacturing positions.

However, these incentives are often passed on to the customer in the form of higher prices. Consumers are also looking for products that will last, so they are looking not only for a superior product, but also superior customer service that accompanies large purchases.

Be Prepared to Adjust to Microchip-Based Shortages

What can you do to adjust to the microchip-based shortages? Here’s a list of suggested techniques:

  1. Curtail spending – If you don’t need it, don’t buy it.
  2. Share sparsely used items – Work with neighbors to share sparsely used electronics such as blenders, weed wackers and snow blowers.
  3. Buy used – If you have to buy, focus on purchasing slightly used, refurbished or recycled items. There are any number of apps that allow you to shop for used items from the comfort of your home in just about any category imaginable.
  4. Negotiate – Prices are going to continue to rise, so try to negotiate to get a more reasonable price. Bundling services can also offer discounts.
  5. Search for discountsMany companies offer discounts for teachers, military personnel, and first responders.
  6. Sell unused itemsAll of us have items that could be resold. Consider this an additional source of income.
  7. Consider buying items that don’t need microchips – This one suggestion is hard to follow I know, but there are sustainable products that don’t need microchips, so do your research.

The Future of Microchips

There’s a lesson in every story, so what can we learn from the microchip shortage? Here are four unexpected benefits of the microchip shortage:

For starters, consumers’ tastes are shifting to purchasing higher quality items that are used more frequently. Durability is key when creating future products.

A second side benefit is quality over quantity. Consumers have more time on their hands to research an expensive purchase, thus driving up the demand for high-quality items, such as TVs. As a result, top-of-the-line manufacturers are seeing record sales.

Third, environmental sustainability is key. Consumers are looking for environmentally friendly items that don’t rely on high-priced internal components. The next generation of products will focus on using fewer semiconductors and microchips.

Last, but not least, companies can maximize profits by handling returns in a forward fashion. Companies can maximize profits by creating more robust reverse logistics operations that focus on using refurbished, recycled, and reused products.

Learn More about Logistics and Reverse Logistics

The University offers courses in logistics and reverse logistics that address real cases of supply and demand. Courses start monthly and include a cadre of instructors from various backgrounds who contribute to the learning experience.

“The first program of its kind,” our online bachelor of arts in reverse logistics management provides insight into the quickly changing and complex field of supply chain logistics including technological and procedural changes. This degree allows students to explore the sophisticated reverse logistics process of moving goods from a consumer back to a distributor or manufacturer. The courses emphasize a keen awareness of supply chain management and retail management.

Our online bachelor of arts in transportation and logistics management illustrates “how economics, finance, global air components, maritime, radio-frequency identification (RFID) technology, reverse logistics, and ground transportation systems work together to support the global supply chain.” Students learn “how to integrate planning, optimize monitoring, and enhance high-capacity delivery reliability using the latest software and methods.”

Both degree programs are accredited by the Accreditation Council for Business Schools and Programs (ACBSP). So take a deep dive into reverse logistics and logistics policies, trends, and issues to learn more about the global impact of supply and demand.

Dr. Kandis Boyd Wyatt, PMP, is an award-winning author, presenter, and professor with nearly 30 years of experience in science, technology, engineering, arts, and math (STEAM). She is the creator of the Professor S.T.E.A.M. Children’s Book Series, which brings tomorrow’s concepts to future leaders today. A global speaker, STE(A)M advocate, and STE(A)M communicator, she holds a B.S. in Meteorology and an M.S. in Meteorology and Water Resources from Iowa State University, as well as a D.P.A. in Public Administration from Nova Southeastern University. She is a faculty member in Transportation and Logistics for the Wallace E. Boston School of Business and specializes in Artificial Intelligence (AI) in transportation, education, and technology.

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