Welcome to brain Stuff production of I Heart Radio. Hey brain Stuff, Lauren Boga Bam Here. Whether you've gone shopping lately for a new car, a washing machine, a game console, or any number of other items, you've probably discovered that the stuff you want is way more expensive than it used to be and increasingly hard to find. The price tags on some high end TVs, for example, have risen
nearly thirty since this time last year. New cars are in such short supply that the cost of used vehicles is skyrocketing, to the extent that the price of a Saturn, a brand that's been defunct for more than a decade, is up by more than twenty six over last year. So what's up with that? All of these products do have something in common in that they contain semiconductors, also
referred to as microchips or integrated circuits. These have become a vital component in this smart gadgetry of our modern war old, enabling the myriad miracles we expect our possessions to routinely perform and right now, as a result of COVID nineteen's disruptive impact upon semiconductor plants in Asia and pandemic induced distortions of consumer demand that United States manufacturers off guard. There aren't enough semiconductors to go around, and
the crisis is likely to get worse before it gets better. Gartner, the global market research and advisory firm, recently predicted that the worldwide semiconductor shortage will persist for the rest of this year and that normal supply levels won't be available until the second quarter. For the article this episode is
based on How Stuff Works, spoke with Rob Handfield. He's the Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University and director of the school's Supply Chain Resource Cooperative, which studies and works to improve the flow of products in various industries. He explained that the scope of this applies to quote, dishwashers, thermostats, vacuum cleaners, coffeemakers, and cars. Everything has electronics in it.
The most obvious cause of the shortage has been the disruption caused over the past year and a half by COVID nineteen. Three Quarters of the world semiconductor making capacity is in East Asia, and early on the pandemic forced a few countries to temporarily shut down semiconductor manufacturing plants along with other businesses, though others, such as China deemed
semiconductor industry labor forces to be essential workers. International shipping of electronics also has been hindered by the pandemic, and recently, a new surge in COVID nineteen infections in Taiwan, one of the world's key sources of semiconductors, has threatened to interfere with production at a time when it's needed more
than ever. The initial shortage of semiconductors occurred at a time when pandemic isolation was forcing millions to stay at home and work and play a remotely that stimulated the consumer craving for electronics. Expecting a slump in the market, semiconductor manufacturers didn't invest in additional capacity. When instead demand surged, the chip fabrication foundries called fabs and industry LINGO weren't
ready to meet it. As a result, the time needed to fill orders at some factories has gone from the usual twelve weeks to twenty to twenty two weeks. According to Handfield, he said, when you order them, you won't see them for almost six months. Meanwhile, manufacturers who need semiconductors as components miscalculated as well. Some of the biggest
pain has been felt in the automotive sector. Today's cars and SUVs depend upon computers to regulate everything from the fuel going into the cylinders to the brakes and steering, and according to a recent New York Times article, a high end vehicle can contain three thousand or more microchips. How stuff Works also spoke by email with Brent Are Moritt's associate professor of supply chain Management at Penn State University's Smell School of Business. He explained that when the
pandemic hit last spring, most automakers reduced their forecasts. Instead, Morris said, demand for cars and trucks is higher than expected, a many people who relied on public transport or ride sharing want their own cars. A fire this spring at a major Japanese supplier of chips and electronic modules for several major automakers helped exacerbate the auto industry shortage, though the plant is now nearing full production again, and fixing
the problem isn't going to be simple or easy. Manufacturing semiconductors, which can involve etching as many as twenty patterned layers of circuitry onto a tiny piece of silicon is a complex process, and the factories needed to perform these tasks
can take two to three years to build. The U S Senate recently passed a build designed to bolster the U S tech sector's ability to compete with China that would provide fifty two billion dollars in subsidies to domestic semiconductor manufacturers for research and development as well as manufacturing. The legislation, which still must be voted upon by the House, would provide a boost to US chip making, which today only accounts for twelve percent of the global capacity, down
from sent back in. Building new fabs here could help provide a bigger supply of US made semiconductors, but it wouldn't have much immediate impact upon today's shortage. A Handfield explained, there's a lot of discussion around bringing more chip manufacturing back to the US, but it's not as if you can just build a factory and start making chips. You see,
semiconductor manufacturers required their own supply chains as well. Handfield cites the example of one large Asian manufacturer having two thousand, five hundred different suppliers. A new of would need to create its own supply chain. Another problem that complicates the semiconductor shortage is that many uses requires specialized chips, which makes it difficult to adjust manufacturing to meet surges in
demand for particular products. The Handfield says that one possible answer to that problem is the development of customizable chips built from components that could be assembled in different ways,
hasn't get materialized to any level. Meanwhile, as the pandemic recedes in the United States due to vaccines, the demand for semiconductors and the resulting shortage may grow even more dire More, It's said the combination of stimulus funds and the fact that people have not been spending money on other things like vacations, air travel, restaurant meals has seen people want to spend on consumer goods that use chips at things like new computers, monitors, tablets, and all manner
of consumer electronics. This is putting additional strain on the supply chain and end the industries that use semi conductors are only growing as more of our tech becomes smarter. But on the positive side, more It's expects automakers and other manufacturers to learn from the crisis and learn how to avoid future instances. He said, probably the largest innovation that can help right now is building supply chain resiliency.
The auto industry was famous for reducing inventory, yet in the circumstance, the drive for efficiency and low inventories has resulted in shortages. Of course, inventory is not the only way to build resiliency, yet having spare capacity, flexibility, and good supplier relationships can help mitigate the future shortages. I expect that the auto industry will be treating semi conductors more strategically rather than as a commodity, yet that mindset
is hard to break to. Bday's episode is based on the article A perfect storm of worldwide catastrophes is called Singing the Global Semiconductor Shortage on how stuff works dot com, written by Patrick J. Keiger. Brain Stuff is production of by Heart Radio in partnership with how stuff works dot Com and is produced by Tyler Klang. Four more podcasts my Heart Radio, visit the heart Radio app, Apple Podcasts, or wherever you listen to your favorite shows.