General Motors recently announced that they are shutting production at most of their North American plants due to the continued chip shortage. Most experts predicted that the chip shortage would be over at this point. Instead the issue has only worsened due to limited supply.
The shortage has highlighted a major issue with U.S. manufacturing of high-tech items. Seventy-five percent of semiconductors are manufactured in Asia. For years we’ve known the global supply chain of chips is fragile and unable to react quickly to changes in demand. Most U.S. manufacturing has relied on Just-in-time (JiT) supply chain movement for years. This is considered good since it keeps supply (inventory) low while also ensuring a steady stream of needed parts. When you’re relying on one region for your critical components however (Asia), the risk is very high that Just-in-Time will lead to failure.
Could Six Sigma have helped?
Maybe, but it would have been most effective had lean processes been built into the global supply chain years ago. Many manufactures already focus on Lean, such as Toyota. Even they have been devastated by the chip shortage however, cutting global production by 40%. Volkswagen has also warned it may be forced to cut output. With so many auto manufacturers struggling, hasn’t it become clear that we need to re-think the way the supply chain works? Auto manufacturers have increased the number of continuous improvement managers, change managers, and six sigma certified professionals over the past two years in an attempt to improve output. While it has helped a little, tier 1 suppliers still cannot procure sufficient quantities of chips.
Production in the U.S. is key.
Why have we allowed the manufacturing of critical components to leave the United States? President Biden’s infrastructure plan is proposing $50 billion for the semiconductor industry in the U.S., but this will not be enough if we want to take the lead in chip manufacturing. Intel, currently the only major player in U.S. chip manufacturing, certainly can’t do it alone. Yes, there are tremendous profits to be made in semiconductors. The barrier to entry is so high however, that it’s virtually impossible for competitors to materialize without government subsidies. Supply chain management is the management of connected businesses. It involves the finances, logistics, and delivery of products and requires integrated behavior and cooperation among the chain’s firms to be successful. Slow delivery times caused by shipping bottlenecks, port of entry delays, and limited trucking capacity all lead to additional delays. If these components were manufactured in the U.S., the logistics issue would be almost non-existent.
Where do we go from here?
The auto industry is in the middle of re-imagining the supply chain. Hopefully, they are looking to Design for Six Sigma (DFSS) principles as they develop new processes. While DFSS and Lean Six Sigma can’t fix the current issue, it could go a long way in preventing issues in the future. The Biden administration also needs to look at the problem from a national security standpoint and realize just how bad the situation could become. Without subsidies and tax breaks, the chip shortage will continue to devastate manufacturing in the U.S.