Resilinc’s Rick Freeman weighs in on the future opportunities for high-tech and semiconductor companies
Despite the stabilization of the high-tech and semiconductor supply chain, the industry still faces pressure due to ongoing import/export restrictions and changing regulations governing semiconductor production and sourcing.
As the industry continues its road to recovery, the focus will remain on greater resiliency, supply chain security, and materials sourcing transparency to prevent future supply chain shortages and process bottlenecks. We sat down with Resilinc Directory of Advisory Services Rick Freeman for his greater insights around PFAS, nearshoring and reshoring, and regulatory challenges such as UFLPA that will affect the high-tech industry well into 2024.
What are the top 3 challenges facing high-tech and semiconductor global supply chains today?
The first is PFAS which are integral to high-tech supply chains because of their use in equipment found in semiconductor fabs. These machines are filled with heat transfer fluid (HTF) which acts like an antifreeze to keep them at a certain temperature—that’s where the PFAS comes in. PFAS are also used in the photo-resistance process in semiconductor manufacturing. PFAS are all over the place—semiconductor companies are trying to identify where PFAS are in their supply chains so they can take action. They are asking questions like ‘Do our facilities teams know what piping it’s included in?’
The second is tensions around export controls with China and Taiwan, which leave many companies reevaluating their global sourcing strategies. They’re trying to figure out how to find alternate suppliers out of that area. Or if they have a factory that remains in China, they’re considering second sourcing or evaluating whether their supplier has factories in other countries. Nearshoring is also happening but that takes a lot more work. Companies are announcing semiconductor fabs, like Micron’s New York-based factory and Intel’s US-based factory.
The third is regulatory impacts. There are so many regulations like UFLPA and the German Due Diligence Act and others that are impacting global logistics and shipping. Companies are now being required to show what their supply chain looks like. For example, if a company’s shipment gets stopped by customs at the border, they may be required to show where it was manufactured through proof of purchase orders and invoices. To do that, they would have to know their suppliers at the part level, which requires visibility into their multi-tier network. A lot of companies are still trying to figure out how that level of deep visibility.
How should companies begin to address the challenges around PFAS?
Work on finding alternatives. With ongoing scrutiny around PFAS regulations, if companies can’t use that for HTF anymore, they have to come up with an alternative to PFAS. The industry has been working on alternatives for a long time, knowing that PFAS will become a problem—but no perfect solution exists. Right now, companies either need to work together or they all need to work rapidly on their own to find alternatives. Just crossing your fingers and hoping for the best is never a good risk management mitigation solution; but unfortunately, that’s what some companies are doing because they don’t have the resources. They are hoping bigger companies will solve the problem—but this also puts them at the end of the line if they’re not innovating or driving.
Companies need to understand the value in mapping their supply chain. Once they know where PFAS are, then they can categorize the different types of PFAS found in their supply chain and identify the right solution to start reducing potential impact. For example, if a lot of the piping is made from PFAS, discussions can begin with those piping companies about alternative commodities that will be as strong, long-lasting, and durable as the original source.
In parallel, companies should leverage Resilinc to issue surveys to suppliers. Ask questions like, ‘Do you use PFAS? If so, at what quantity? Is there a viable alternative?’ Then companies can see the escalation path and start working toward a solution.
In terms of export controls and the shift in reshoring or nearshoring out of China and Taiwan, what are companies doing to find alternative solutions or locations?
Before, the mindset was, ‘As long as you keep shipping me my stuff, that’s all that matters.’ Now, companies are realizing that, 80% of the time, disruptions come from their tier-two and tier-three suppliers. Companies are finding that they don’t have the visibility they need. That’s where we come in—to help them quickly and efficiently get visibility deep into their supply chain. That way, they can understand what the risks are for having offshore sites and start making strategic decisions.
One of the biggest questions for nearshoring right now is, ‘Will assembly test sites also be built in the U.S.?’ It’s a good start that the U.S. is building fabs because they are the most expensive and complex part of the process and can take 2-3 years to get up and running before production even begins. But for those reshoring or nearshoring out of China or Taiwan, they must also consider impacts to assembly test sites.
Currently, there are enough subcontractors that have assembly test sites throughout Asia that no matter what happens, they will have access to those sites. The downside is that if something does happen with China and Taiwan, the number of assembly test sites will go down. If that happens, everyone will be fighting for capacity. Companies will need to discuss how viable assembly test sites are cost-wise and how critical it is to infrastructure.
Regarding regulatory impacts like UFLPA and the German Due Diligence Act, how is Resilinc helping customers tackle those issues?
Mapping your supply chain is key to navigating global regulatory changes affecting high-tech and semiconductor supply chains. We not only look at suppliers, but also down to the part level through multi-tier supply chain mapping. If a company’s product gets stopped at customs, Resilinc can speed up the process of getting that package released by sending over the mapping data.
If they don’t have that visibility, when their product gets stopped, they’ll have a limited amount of time to come up with a response. In the meantime, their product will be sitting in a warehouse, and will have to manually call suppliers to get copies of purchase orders and invoices. That’s a lot of work that can cause a lot of unnecessary panic.
What is your advice to high-tech and semiconductor companies who want to mature their existing resiliency programs?
I would start by asking, ‘Do you have 1) people, 2) process, 3) governance, and 4) technology specifically for supply chain risk management?’—and an established a strategy for operational resilience. Analyzing the supply chain after you’ve built it is important. However, if you don’t include risk in your decision-making, then you will end up with higher-risk suppliers and products. This makes your supply chain less resilient, and more susceptible to disruptions.
The key is to do something—be proactive. Many companies are still in a reactive stage of maturity when it comes to SCRM. When an event happens, they rely on Excel sheets and hundreds of phone calls. Companies will say, ‘We’re really good at it!’ I tell them that’s great, but your competitors have an advantage over you. When there is an event, they get responses back in minutes when a site is impacted. Those competitors don’t have to utilize 10 people or make 400 phone calls to figure out the problem.
I’m sure there was a time in the 80s when we were good at handwriting purchase orders and faxing them out to companies to buy things. Those companies became efficient and good at that process—but computers could do all that faster. It’s the same for shifting using a supply chain risk management platform. It’s exhausting trying to get an entire team together every other week when a disaster or disruption happens. Save yourself the stress.
***
To stay ahead of the competition, check out Resilinc’s latest Spotlight report on the High-Tech and Semiconductor Industry. Stabilization of the high-tech and semiconductor supply chain is evident. As the industry continues its road to recovery, focus will remain on greater resiliency, supply chain security, and materials sourcing transparency to prevent future supply chain shortages and process bottlenecks. In this Spotlight report we cover exclusive data, critical commodity export restrictions, exclusive expert insights from Genpact and SEMI, and best practices to build a resilient high-tech supply chain. Grab your copy here: 2023 Spotlight on High-Tech and Semiconductor Industry.
