Taiwan’s Earthquake Should be a Wake-up Call for Global Supply Chains

From the moment you wake up and stop your smartphone alarm to the espresso machine that makes your morning brew to the car that takes you to work, semiconductors are at the center of your world—all our worlds.

The demand is so high that manufacturers of all kinds are desperate to include these chips in their devices. Taiwan holds a market-leading 46% global semiconductor foundry capacity and is home to the world’s largest chipmaker, TSMC, the supplier for tech giants like Apple and Nvidia. Taiwan and South Korea have emerged as leaders in production while the rest of the world lags. According to a report by Citi Bank, the U.S.’s share of semiconductor manufacturing is down to only 12% from 37% in the 1990s.

Taiwan was recently hit with a 7.2-magnitude earthquake that threatened to disrupt an already strained semiconductor supply chain further. While initial reports suggest there won’t be a major impact on production, the event is a stark reminder that putting too many eggs in one basket is a poor supply chain strategy.

Although many manufacturers were able to quickly restore operations and minimize the impact on global chip supplies, the incident highlights the urgent need for companies to invest in more resilient supply chain strategies. By embracing transparency, agility, and collaboration, the semiconductor industry can build the strength and adaptability needed to weather future disruptions and ensure a stable, uninterrupted flow of these critical components to the world’s technology ecosystems.

Despite best intentions, simply reshoring some fabrication will only shore up stability with a complete rethink of semiconductor supply chain design and a collective shift toward transparency, agility and orchestration across the global supply chain.

The path forward lies in prioritizing transparent orchestration rather than localized cost optimization. When getting commercial players to connect systems and share information openly, the barriers are sometimes more cultural than technical. However, perpetuating fragmented decision-making will only exacerbate the challenges posed by disruptions like the Taiwan earthquake. And the next disruption could have far more significant consequences.

Complexity Calls for Orchestration

The decade before the pandemic was a golden age for supply chains. There was relative stability and no severe global disruptions. Companies could deliver high service and cost optimization, but COVID-19 changed everything.

Since March 2020, issues from the pandemic to geopolitical conflicts in Ukraine and the Middle East, economic volatility, cyber-attacks, energy price spikes, and climate events have become persistent threats interrupting regional output. Supply chains also became more complex as companies found new partners that could help them meet consumer demands. The need for supply chains to be resilient is more significant than ever, and that feature requires agility and coordination from end to end.

While reshoring some semiconductor manufacturing is a start, it makes supply chains even more complex rather than streamlined. The most critical element in simplifying the dynamic is to introduce transparency.

This conversation often confuses visibility with transparency, but there’s a clear delineation. Visibility explains what’s happening in each supply chain link, but there’s no actionable information. Capabilities like artificial intelligence (AI) can absorb this information, recognize patterns, and turn visibility into transparency, the ability to make decisions across the entire supply chain based on their anticipated impact.

Technology’s Crucial Role

Investments to accelerate semiconductor manufacturing shouldn’t just be about wafer fabricating facilities and building supply chain bench strength through technology and digital tools. AI is at the core of these programs, like scenario planning applications.

AI works best when collaborating with experienced professionals rather than operating independently. There are essentially three ways to use AI:

·      “in the loop,” where it provides input to support human decision-making;

·      “on the loop,” with some autonomy but oversight by supply chain personnel who have the ultimate call;

·      “out of the loop,” where there is no human oversight.

Only when stakes are low and the systems have been well trained should AI be totally “out of the loop.” The key is determining which decisions have levels of risk where AI judgment still requires guidance. For especially crucial decisions that could dramatically disrupt output, seasoned supply chain managers should review AI recommendations and provide the final verdict. Combining AI with industry veterans steeped in situational nuance is optimal for navigating volatility.

Leveraging technology to understand and accelerate a supply chain’s many processes and elements develops a more coordinated effort and makes the supply chain more agile. Achieving transparency and making supply chains more agile will be crucial in minimizing disruptions to semiconductor output.

How to Get There

Fundamentally rethinking dated dynamics is the first step toward supply chain orchestration. The traditional procurement-focused model, centered on localized cost control and one-way buying relationships, fails when volatility disrupts linear plans.

This dynamic leads to long wait times for products that need semiconductors. For instance, a car without a GPS can be delivered months sooner than one with a GPS because the semiconductor backlog is that long. With better-orchestrated supply chains, we can minimize that wait time.

Technologically, connecting different companies’ operational systems and data is easy—the obstacle is getting past commercial sensitivities and understanding that the willingness to share information will introduce efficiency. Perpetuating information silos internally and externally carries grave opportunity costs in disruption readiness.

Reframing supply networks from cost to service centers and collaborating proactively on crucial elements like demand forecasts will allow supply chains to move faster. In this ideal scenario, a semiconductor manufacturer could see that a retailer has sold many devices and can quickly work to meet that demand without coming short or sitting on excess inventory.

The future of the semiconductor supply chain remains volatile, complex and deeply interdependent. To reduce the impact of disruptions like the Taiwan earthquake, we need to coordinate our efforts more. Restoring operations alone won’t help strengthen the supply chain’s resilience. The buy-in between companies and digital tools will allow the industry to take the next step.

Matt Spooner is an industry thought leader with Kinaxis, a provider of end-to-end supply chain orchestration.