The Chip Shortage – What It Means for Your Business

The Chip Shortage

There is a global shortage of computer chips right now.  It has been caused by a near perfect storm of circumstances for chip manufacturers worldwide.  Since those chips are in almost everything nowadays, from cell phones, to tablets, to laptops, and even appliances, it means you may have some significant delays on getting tech.  You may also need to change some of your business practices surrounding tech.

Why the shortage?

There are a lot of contributing factors here.  One is how many of the major tech manufactures manage their inventory.  Most of them use a just in time inventory methodology.  This means that they try to plan out inventory levels based on projected sales and order parts just in the nick of time.  This has worked well to eliminate waste when all those components are readily available.  Currently they are not, which has cause significant manufacturing delays from most of the large hardware manufacturers.

There is a lot more to it than that though.  Most of the worlds chip supply comes from Taiwan, and specifically from a company called Taiwan Semiconductor Manufacturing Company.  They have been hit with two significant problems.  Trumps trade war with China has caused significant red tapes and difficulty.  The manufacturing process also requires an immense amount of water, and there has been an unprecedented drought in Taiwan for some time.  Water levels are so low that they are now required to truck water in from elsewhere to be able to continue manufacturing.

Add to that another major chip maker in Japan that had a fire in a major factory last October, and the crazy weather in Texas which shut down plants there.  Along with the personnel nightmare that COVID has created, and you have a global shortage.


Some analysts that are looking at this problem believe that it will take an entire year for manufacturing to get back on track, and another 6 months after that for stock levels on chips to get back to normal.  US chip maker Broadcom has been preselling their production and says that 90% of what they make in 2021 is sold.  The problem is real.

The US has already taken steps to increase chip manufacturing on US soil.  President Biden signed an executive order that allocates $37 billion in incentives for chip manufacturers in the US.  However, this does little to solve the immediate problem as those factories are billion-dollar projects that will take years to get up and running.

What does it mean for your business?

The key takeaway here is that business owners will need to plan for significantly longer lead times to be able to source new hardware.  Items that were previously immediately available may now take weeks or months to procure.  Try to forecast that demand as much as you can.  If you know you will be hiring new staff that will require hardware order it as soon as their offer letter is accepted.  If you wait until the day before they start, you may find yourself unable to get them the equipment they need to do their job.

If you are a business that runs your computers and servers until they fail, you may want to rethink this strategy.  It’s possible that was an acceptable risk when the resulting downtime you would experience was a day or two.  If it now takes a month to replace that hardware, how would it impact your business?

We recommend creating a replacement schedule where you replace hardware after the manufacturer warranty runs out.  This enables you to get the full working life out of a machine but cycle it out early enough that you avoid failures and downtime associated with older hardware.  It also allows you to cycle those machines before they fail and will reduce your risk of not being able to get a replacement in a timely manner.

With a little more strategy on hardware replacement and a little more planning the chip shortage should have very little impact on your day-to-day operations.  If you fail to plan, you could be planning to fail with long delays on some hardware replacements.