Semiconductor Supply Chain Issues

Semiconductors have been in shortage since 2021. COVID-19 caused an increase in demand for semiconductors, as the rise in remote working led to greater consumption of electronic goods. For instance, the demand for semi chips rose by 17% between the years 2019 and 2021. Shortages were felt across multiple sectors, with companies like Toyota cutting vehicle production by 40%, as a consequence of chip supply not meeting demand. As a result, the medical technology industry, which also uses semiconductors in medical devices, faced supply chain issues. Now, however, after a period of recovery, the sector is tackling a new disruption.

Ukraine’s resources

In February of 2022, Russian forces invaded neighboring country Ukraine. Amongst the awful impacts the invasion is having on the Ukrainian people, are the collateral effects on global semiconductor supplies. Ukraine holds half of the world’s quantity of neon gas. Neon gas is vital for the construction of semiconductor chips; it powers the lasers that etch the patterns into the chips. Due to its large steel industry, Russia produces a large amount of neon, which it usually sends to Ukraine to be extracted and purified. Two other materials could also be impacted by the invasion, palladium and C4F6. Russia produces palladium, which is used in the manufacture of semiconductors. 

Cryoin, a company in Ukraine producing neon gas, has had to halt production because of the unsafe conditions currently in the country. Cryoin is a supplier for companies in Europe, East Asia and the US. Resultantly, the US and Japanese governments have called for their chip companies to source neon gas differently. In March of 2022, President Joe Biden met with leaders of US tech companies. He reportedly pushed to secure billions of dollars, from taxpayers, to assist in the manufacture of semiconductors.

Semiconductor shortages

Pressure from authorities is also being felt in Europe. It is expected that the biggest impact of Ukraine’s supply issues will be on countries in Europe. In response, the European Chips Act was established by the European Commission, outlining the steps to be taken to address and prevent current and future supply chain disruptions. It is the Commission’s aim to meet the goals set out by the EU and double the current market share of semiconductor production. This increase to 20% is to be achieved by 2030, in a move to try and establish a resistant supply chain for European markets.

Medtech companies are feeling the strains of supply chain issues of semiconductors. GE Healthcare and ResMed have highlighted impacts on their production. Medtronic has been experiencing semiconductor and resin supply challenges. They have been able to improve their resin supply but still expect their semiconductor shortage to last into the first part of the next fiscal year. Earlier in the year, Medtronic revealed that they have moved from purchasing goods 6 months in advance, to between 53 and 85 weeks. 

At the same time, the company is attempting to construct a sufficient operational capacity and ensure enough inventory, in case of another COVID-19 variant like Omicron. The latter move results from awareness that holding excess inventory may now be necessary. Balancing having enough for emergency situations and not storing inventory that will go stale, is a task Medtronic and other medtech companies will have to do. Other companies are doing the same. According to a survey from Deloitte, previously 13% of respondents held a chip inventory, but that value is now 70%.

Moving to solutions

In addition, Deloitte found that medtech manufacturers were now more “pessimistic” about the supply chain issue. Many manufacturers are stating that their inventory is now depleted. Of their respondents, over half previously used a single source for the majority of their semiconductor supply, now all of them use multiple sources. Vamstar’s AI-powered marketplace platform can assist with this. It connects buyers to multiple suppliers who can fulfill contract tender requirements. In turn, buyers will not experience supply shortages as they will not be reliant on a single supplier. For devices reliant on semiconductors, which are in high demand and short supply, this is very important.

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