Chip shortages concerning to more than automotive

Departments - Editor’s Letter

Competing with medtech for 2nd or 3rd generation chips are automotive, industrial, and consumer industries, which can cause further disruptions.

October 7, 2021

Elizabeth Engler Modic, Editor

News headlines after a quick Internet search of “semiconductor chip shortages” in order are: Reuters: New semiconductor plants will end global chip shortage next year ~Teslas’s Musk; The Washington Post: Chip shortage worsens for automakers; and Fox Business: Biden considering Defense Protection Act to address semiconductor chip shortage

After surfing through many page results, I finally see a headline referring to the chip shortage and its impact on computers and gaming systems. Then it takes a few more pages to get to news about chips and medical technology (medtech). Yet, the warning isn’t what could happen, rather the need to make sure it won’t happen.

A recent study commissioned by Advanced Medical Technology Association (AdvaMed), found that two-thirds of medtech companies say semiconductors, firmware, and/or embedded software is required for at least half of the medical devices they produce. The study’s authors – Deloitte Consulting’s Specialist Executive Bill Murray and Specialist Leader Stephen Bradley – echo the concern that, to date, coverage of semiconductor issues have been tied to automotive and consumer when medtech is what should be on the high-priority industry list. “The chip shortage isn’t affecting just one medtech device or a single organization; it’s becoming an acute, industry-wide issue” for companies producing essential medtech, where semiconductors represent $5.1 billion of the $415 billion total semiconductor market.

And there’s reason for concern. Competing with medtech for 2nd or 3rd generation chips are automotive, industrial, and consumer industries, which can cause further disruptions. All respondents experienced chip supply disruption ranging from delays of 2 weeks to 52+ weeks, to order cancellations and short orders. One medtech procurement lead replying to the study said, “Initially we were told we need to issue purchase orders until 2023, but that doesn’t seem to be enough to secure supply anymore.”

Echoing that concern is a recent Oxford Economics supply chain research briefing where, “Baseline projections assume supply chain headwinds will weigh on activity until at least H2 2022,” with impact on some sectors (automotive) lasting until 2023; responses that don’t bode well for any market reliant on chips.

Yet chips are only one supply chain concern. The briefing found that, “Manufacturing inventories-to-sales ratio – a proxy for the balance between supply and demand – has been under steady pressure since summer 2020. And the inventories of nearly 75% of manufacturing subsectors are running leaner than pre-COVID-19 levels.”

And then there are the challenges beyond chips, such as transportation logjams bottlenecking delivery of everything from raw materials to the equipment needed to increase production of in-demand products.

With the medtech industry facing supply chain challenges on all sides, what pain points are you facing – chips, materials, equipment? Drop me an email and let me know.