The automotive industry is navigating an unprecedented semiconductor shortage, driven by a confluence of factors ranging from the COVID-19 pandemic to geopolitical tensions.
For procurement professionals tasked with ensuring continuity in production and product innovation, understanding where and how to source these chips is an important part of their roles.
Direct sourcing from manufacturers
Sourcing directly from semiconductor manufacturers remains one of the most reliable strategies for securing automotive-grade chips. Companies like NXP Semiconductors, Infineon Technologies, and Texas Instruments are leaders in this space, offering components specifically designed to meet the stringent requirements of the automotive industry. These manufacturers offer good quality and reliable products and provide critical support in the form of customisation options and technical assistance. For example, NXP’s extensive portfolio of automotive chips is accompanied by comprehensive documentation and support, ensuring that these components integrate seamlessly into a vehicle’s systems.
This direct relationship allows for better forecasting and planning, which is important in a sector where demand fluctuations can have significant impacts. By working closely with these manufacturers, procurement professionals can secure long-term agreements that stabilise supply and provide pricing predictability. This approach is particular advantageous given the industry’s shift towards electrification and autonomy, which will only increase the demand for specialised semiconductors in the coming years.
Leveraging authorised distributors for flexibility
While direct sourcing offers many benefits, it can sometimes lack the flexibility required in a rapidly changing market. This is where authorised distributors come into play. Companies like Arrow Electronics and Mouser Electronics serve as intermediaries between semiconductor manufacturers and automotive suppliers, offering a broad range of products from multiple manufacturers. This breadth of choice is invaluable when seeking to diversify supply chains or quickly respond to unexpected shortages.
Authorised distributors also provide additional services such as inventory management, demand forecasting, and just-in-time delivery, which can help mitigate the risks associated with the volatile semiconductor market. By partnering with these distributors, procurement teams can ensure that they have access to the components they need, when they need them, without holding excessive inventory that ties up capital and increases costs. Moreover, these distributors are adept at navigating the complex logistics involved in global semiconductor supply chains, making them a vital resource for automotive companies looking to maintain production continuity.
The role of contract manufacturers in supply chain integration
Contract manufacturers (CMs), particularly those specialising in electronic manufacturing services (EMS), play a crucial role in the automotive semiconductor supply chain. Companies like Foxconn and Jabil not only manufacture electronic components but also manage the sourcing of these components on behalf of their clients. This integrated approach can simplify the procurement process, especially for automotive companies that lack the resources to manage complex supply chains themselves.
By working with CMs, automotive manufacturers can leverage existing relationships between these contractors and semiconductor suppliers. This can be particularly beneficial in securing high-demand components during periods of shortage. Additionally, CMs often offer economies of scale, which can reduce overall procurement costs. This approach is especially advantageous for companies looking to outsource non-core manufacturing activities while still maintaining tight control over the quality and availability of critical components.
Navigating online marketplaces and secondary markets
In situations where traditional channels are insufficient, online marketplaces and secondary markets can provide alternative sourcing options. Platforms like Digi-Key and Future Electronics offer quick access to a wide range of semiconductor components, making them a great choice for smaller orders or for components that are in limited supply. However, while these platforms offer convenience and speed, ensure that you use a reputable distributor and understand that they can also come with risks, particularly in terms of component authenticity and traceability.
The secondary market, including semiconductor brokers, can be a last resort when components are unavailable through official channels. While these brokers can sometimes source hard-to-find parts, especially during acute shortages, the costs are typically higher, and the risks related to counterfeit components increase. Procurement professionals must exercise caution and due diligence when engaging with these markets, ensuring that they work with reputable sources and verifying the authenticity of the components through rigorous testing and certification processes.
Long-term agreements and the future of semiconductor sourcing
As the semiconductor shortage continues to impact the automotive industry, securing long-term agreements (LTAs) with key suppliers is becoming an increasingly popular strategy. These agreements offer several advantages, including stabilising supply, providing cost predictability, and fostering closer relationships between manufacturers and suppliers. LTAs can also include clauses for capacity reservation, which ensures that automotive companies have guaranteed access to the chips they need, even during periods of high demand.
Looking forward, the future of semiconductor sourcing in the automotive industry will likely involve a combination of these strategies. The push towards localising semiconductor production, driven by geopolitical concerns and the need for supply chain resilience, may lead to a greater emphasis on regional sourcing and investment in local fabrication facilities. As governments and industry players recognise the strategic importance of semiconductors, initiatives to build local capacity, such as the US CHIPS Act, are likely to shape the landscape of automotive semiconductor sourcing in the years to come.
