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Microchip shortage: how it started and its impact on Predictive Maintenance.

The fact that the microchip shortage crisis is now known to private consumers too gives us an idea of the scope of this event. As a company developing a Predictive Maintenance solution based on sensors, we rely on microchips a lot. Here's how we reacted to the crisis.

The microchip shortage: how it started

Yes, also this event is one of the many unforeseen consequences of the pandemic. According to GCN this phenomenon is an example of what economists describe as a bullwhip effect. In the supply chain every information coming from a downstream member is valuable information to make decisions on sales and inventory. When this information is distorted, the distortion of the decision rises as it moves up the supply chain. During COVID, all the people forced to stay at home started relying increasingly on electronics for the house. But meanwhile, some of the companies producing such goods were either shut down because of the pandemic or at least, they weren’t ordering enough components. As the demand started to increase, this became a problem.

By now this phenomenon has hit a crisis point and is affecting many different industries, as microchips are present in most of the objects we use on a daily basis. The industry that is suffering the most from this is the automotive industry. According to a report by Bloomberg, in 2000 only 18% of the production cost of a car was linked to electronics relying on semiconductors. In 2020 this percentage was estimated to be 40% and forecasted to grow to 45% by 2030.

What does the chip crisis have to do with Predictive Maintenance?

A lot of things. The good news is that more and more businesses are turning to IoT and predictive technologies also because of the chip shortage. In fact, according to a report by the Research and Data Center of Automotive News, 42% automakers and suppliers have changed or will change the way they mitigate supply chain risk and 22% want to invest in new technologies to do so. Of course, when there are new factors such as a component shortage causing bottlenecks in the production process, it is good practice to increase control over bottlenecks in general and intervening through Predictive Maintenance on bottlenecks caused by machine failures is definitely an option.

The bad news is that Predictive Maintenance is too an industry that mainly relies on sensors, so the chip shortage had an impact on that too.

How AiSight and its machine diagnostics solution reacted to the chip shortage

Imagine how hard a global crisis like this can be for a Hardware Startup. But this is actually another success story about how the Operations Team took over and made sure production of our Aion goes on undisturbed.

Usually, the production of our processing boards happens automatically thanks to our contract manufacturer, which is also in charge of sourcing the electronic components. Last year, at the beginning of the crisis, one of the suppliers of our contract manufacturer reached out to inform us about their forecast of an upcoming chip shortage and proposed that we make a big order to be ready. Unfortunately, as a startup, we couldn’t commit to such numbers, although our internal research and analytics showed too that this crisis was coming.

Some months later we realized the shortage had begun when our contract manufacturer informed us that some components they needed for the manufacturing of our sensor node had a lead time of one year. By that time, Aion had been launched and demand for our solution started skyrocketing. We knew we had to take action and understood that if we didn’t intervene in the components sourcing, we would only have enough until the end of 2021.

Into the processing board of a Machine Diagnostics solution

In electronic equipment, including our product, there are different components. Some of them, such as capacitors, resistors and some types of integrated circuits don’t have unique features, so it means that they can be purchased from other manufacturers without compromising the quality of the end product. Although this sounds easy, it meant that a series of research, calls, quote requests, orders and tracking and monitoring tasks started, on the quest for the shortest lead time.

However, some components are unique and it’s not possible to just find an alternative manufacturer. This is how the search for alternative suppliers and brokers also started, that added a new degree to the complexity of this task, which was now balancing lead time and also price.

Finally, the Team managed to source all the necessary components and reduce their lead time by 5 months, from the end of 2021 to August 2021 and the production of Aions can continue successfully.

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