The Chips Are Down

A worldwide shortage of Microchips due to the Covid-19 pandemic has brought some car manufactures to a halt in the UK. JLR have halted production at both their Castle Bromwich and Halewood plants with Mini following suit. Nearly 10,000 workers at the plants are affected.

Microchips are a key component in cars, they run safety systems, climate control, navigation and starting the engine. Why the shortage? Microchips are complex components requiring precision manufacture at dedicated facilities. Due to the reduction in output of some microchip manufacturers production facilities supply has been significantly impacted. With long lead times and a delicate process, worldwide capacity is at maximum, creating extra capacity is costly and lengthy. There are no estimates to when production will be back to normal levels.

The shortage has highlighted how vital component supply is in manufacturing. Production of electrical appliances from white goods to mobile phones are also feeling the effect. Business best endeavours of finely constructing supply chains have shown that one disruption can quickly bring production lines to a halt.

Managing capacity to supply and demand is critical in manufacturing. With every production line stop capacity is lost, never to be regained. Manufacturing components for a supply chain need to be finely balanced. Understanding usage rates is paramount to ensure the supply chain is not affected. Overproduction results in excess inventory and underproduction results in non-supply, both of which are costly. Continually evaluating and improving your capacity is recommended to ensure the larger supply chain is not halted.

All manufacturers should look to this as a warning to identify any future disruptions early as part of their business continuity. Microchip manufacturers will survive because of the reliance on their product. Other manufacturers in future may not.


Written By: Simon Davey