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The CHIPS and Science Act will de-risk the US manufacturing supply chain

Oct. 3, 2022
"If companies were not thinking about bringing their semiconductor supply base closer to home five years ago, they are now."

By John Ferguson, CEO, TBM Consulting Group

It wasn’t that long ago when US manufacturers could confidently source parts and components from any part of the world and focus their supply chain strategy simply around how to get quality components at the lowest cost. In most cases, and especially when it comes to semiconductor chips, Asia was often the answer.

Then a series of events unfolded that changed the game, beginning with trade conflict between the US and China. Manufacturers began factoring geopolitical risk into the equation to a greater degree. If that didn’t convince companies that their global supply chains had inherent vulnerabilities, then the COVID pandemic most certainly did. And ever since, the hits have kept coming in the form of regional conflict, natural disasters, and transportation-capacity shortages. 

All have contributed to lesser confidence in supply chain stability, component availability, and lead- and transit-time predictability.

Reshoring chip manufacturing is the best way to alleviate supply chain disruptors

If companies were not thinking about bringing their semiconductor supply base closer to home five years ago, they are now. Fortunately, so is the US government, which is making moves to help strengthen supply chains, mitigate global supply chain risk, and create more viable options to support domestic supply chain strategies.

The new CHIPS and Science Act, signed into law in August, is a potential move to help strengthen supply chains, mitigate global supply chain risk, and create more viable options to support domestic supply chain strategies with regards to semi-conductor supply. It promises long-term advantages for companies that rely on the latest technologies and advanced chips to manufacture the cutting-edge products of today and tomorrow.

Already, the act has spurred additional conversations about significant potential private investment in the US semiconductor manufacturing industry. Its impact on the supply of older-generation chips, which are still in high demand, is unclear.

Reshoring takes time that many manufacturers do not have to spare

It is important for manufacturers to understand that none of this is going to happen overnight. The timeframe for increased chip availability in the United States is likely measured in years, not months. Companies that continue to face critical chip shortages in the short term, or those whose supply will not be affected, will need continued focus on solid supply chain strategies. Yes, the future most certainly may look brighter for some, thanks to this legislation. However, there is still much work to be done for companies to keep their operations running and meet demand today.

In other words, manufacturers need to keep up with their own supply chain de-risking strategies, at least for the time being. Because soaring inflation has made building up and storing excess inventory a less viable option for most organizations—assuming they can even get their hands-on excess supply right now—companies will need to be more strategic about how they plan for ongoing supply chain volatility and disruption.

Smart strategy and the golden rule can make a difference today

Diversifying the supply base, dual-sourcing strategies, and nearshoring are all smart strategies right now. So is investing in supply chain control-tower technologies that will afford more visibility into the supply chain and give advanced notice of supply chain disruptions. Developing and implementing these tactics, however, also takes time and resources, which many manufacturers currently lack.

Sometimes the easiest and simplest strategy is to focus on better planning processes and more candid and frequent communication with suppliers. This really comes down to the golden rule we all learned in  grade school—essentially treating your suppliers the way you would like to be treated. Showing a willingness to work with your partners, displaying an understanding of their circumstances and needs, and generally being a reliable customer can go a long way in earning you a preferred status among your suppliers. This will come into play if and when suppliers need to allocate among their customers.

Good things will come, but you can’t just wait

The good news is the US is taking action to become a leader in latest-generation semiconductor-chip manufacturing. With both the government and private investors involved, a sense of urgency will prevail, and progress should be consistent. Still, manufacturers cannot afford to sit back and wait, and many will not be impacted.

By making their own simultaneous moves to be more strategic with supply chain planning and fortifying supplier relationships, organizations can get ahead, today, while hopefully looking forward to more favorable circumstances tomorrow.