The day the world went away
COVID exposed the frailty of just-in-time supply chains, and things aren’t getting better
Since 2020, procurement in the tech sector has steadily become more difficult. Corporate purchasers and consumer buyers alike continue to grapple with both finished product and component shortages. Promises that broken supply chains fomented by the pandemic would be remedied by now have gone unfulfilled. Why hasn’t that product been released yet? Why are application-specific processors still so hard to find? Why are critical components needed for networking, industrial computing, IoT, and edge computing missing in action? The supply chain crisis was never really fixed and mainstream publications have backed away from covering the issue.
During the first quarter of 2020, as lockdowns and quarantines began, consumer technology devices like laptops and webcams saw a massive surge in demand. This sudden surge in demand shocked our “just-in-time” supply chain model; that is, inventory is only moved as demand forecasts dictate. This logistical model saves retailers, warehouses, and manufacturers on storage costs, but eventuates supply-side bottlenecks when a supply or demand shock hits the system.
Throughout 2021 and 2022, supply chain “disruptions” continued to ripple through the economy, punctuating just how fragile our just-in-time paradigm is. Data science has made just-in-time possible: advanced demand forecasting, automated order management, sophisticated consumer behavior analysis have not only enabled just-in-time logistics, but made it the de facto standard for the industrialized world.
All the while, critical component shortages persisted, in spite of companies’ best PR efforts to hand-wave the mounting problems away. The Raspberry Pi Trading Company, famous for the wildly popular Raspberry Pi single-board computer, is still struggling to increase its manufacturing output in order to meet demand for its hardware. The issue: a shortage in one component needed to manufacture a Raspberry Pi brings production to a halt. WiFi chips, Bluetooth radios, USB-C ports, voltage regulators, rectifiers, Ethernet PHYs are all necessary to make a Raspberry Pi 4, for example. If WiFi chips are in short supply, the boards can’t be finished.
Car manufacturers encountered a similar dilemma, with Ford unable to send finished vehicles to dealers due to the widely-publicized “chip” shortage. Untold thousands of vehicles sat idle while carmakers waited for the supply chain to unsnarl itself. Other cars were shipped to dealers, missing highly-touted “smart” features like Apple CarPlay; if Ford, GM, and others had suspended sales of every vehicle that didn’t have every chip it needed, they would have had to contend with massive financial losses. As demand for pickup trucks and luxury vehicles increased, car-buyers were faced with purchasing an unfinished product, all thanks to the just-in-time supply chain.
The snarled supply chain likewise drove lumber prices through the roof in 2021, a price shock from which the market still hasn’t fully recovered. Coupled with very hot inflation rates, sticker shock across a broad swath of industries became normalized. Just-in-time was still broken, even as the pandemic receded and government-imposed economic restrictions were lifted. By early 2022, the true scope of our supply chain wreckage was coming into view. With the headwinds of inflation, personal debt, bankruptcy, and business failures during COVID, the back of the supply chain had been broken. Shortages were going to improve, we were assured, as things got back to normal. “As things get back to normal”, a soothing refrain for a world shaken by a very real global supply chain failure.
Now, in the latter half of 2023, just when things will return to normal remains unknown. As those who work in corporate IT procurement will attest, things have not gotten better. Hardware launches have been postponed while prices have risen dramatically in both end-user products such as laptops and in components. Once-commonplace corporate IT devices, like managed Ethernet switches, have seen persistent shortages while manufacturers of those devices have had to scramble to substitute new chips for the old chips they can’t easily source anymore. These chip substitutions constitute a problem all their own–due to the availability of component-level hardware, like NAND flash controllers, solid state disks have been especially vulnerable to unannounced hardware “updates”, which usually lead to reduced performance and reliability.
As unscrupulous Asian manufacturers seize this opportunity to flood the market with low quality knock off chips and other hardware, companies around the world are being forced to accept a new reality where the old supply chain is gone and isn’t coming back. Where we used to be able to promise a reliable product at a certain price, we now have to accept substitute goods that may not meet the performance, feature, or reliability characteristics of the original product. Worse yet, the replacement product may not meet the clients’ needs, either.
The sudden shock to our tightly-wound supply chain has given rise to a cascading failure of epic proportions. We are in uncharted territory, with no historical precedent or context to inform our next move. The biggest tech companies like Apple and Amazon have weathered the storm, relatively unscathed, owing to their massive liquidity. For the smaller (but still big) players in tech, the news isn’t so rosy. For the smallest players, such as managed service providers, small software developers, game studios, and system integrators, the state of affairs is bleak. A company with Amazon’s scale can simply tell a Chinese factory, “I’ll pay you $100 million to manufacture these chips, to my specifications” and the factory will take their money, throw out every other bid, and make the chips. The biggest players get first pick of the world’s limited high-tech manufacturing capacity. Everyone else gets to fight over the scraps.
In chipmaking, bringing a new factory online can cost billions of dollars, take years to complete, and typically requires huge amounts of raw materials, including fresh water. Intel can speak to the difficulty and expense in semiconductor fabrication, as their recent missteps have shown. Of course, this assumes a complex chip design (such as the x86-based processors most of us rely on in our own computers); a simpler chip design, such as ARM or RISC, is less costly to manufacture and can be reworked to efficiently suit a wider range of applications more easily than x86. Even so, manufacturing enough ARM SoCs (systems-on-chip) for their single-board computers has also proven difficult for The Raspberry Pi Trading Company. There is no safe haven in the world of just-in-time logistics.
It is possible, or perhaps even likely, that the deterioration of our gossamer supply chain will lead to a resurgence in local and more resilient manufacturing. If we have any hope of sustaining ourselves, we have to move the point of manufacture closer to its audience. Shipping a laptop battery from China to Maine, for example, is just demonstrably stupid.
Growing populations and growing demand for technology will only shine a more unkind light on our current way of moving inventory around the world. Maybe just-in-time is peak capitalism and we needed to see it destroyed before our very eyes to appreciate just what’s so wrong with it. In a world that is both tech-obsessed and contending with serious environmental and resource-related challenges, reducing both the complexity of manufacturing and the impact of manufacturing are only net positives.