Supply chain

Microchip supply chain: how to mitigate the supply shortage effects?

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The availability of microchips has become an essential element for the production of various companies dedicated to industrial activities, reaching a global dimension in terms of production importance.

The change in consumption dynamics due to the global COVID-19 pandemic caused a shortage due to car manufacturers' forecasts. Anticipating reduced vehicle demand due to mobility restrictions, manufacturing companies cut their demand, stopping orders for semiconductors needed to maintain regular production levels.

On the other hand, the demand for microchips as components for electronic items increased to meet the production requirements of computers, tablets, and other similar articles, driven by the need for these items to adapt to remote work trends.

Over time and with an increase in vaccination rates worldwide, the automotive industry resumed its activity levels and, consequently, the usual semiconductor demands for manufacturing. This led to increased orders and a request that exceeded production capacity.

The complexity of microchip manufacturing and the variations in planning were the leading causes of a delay in the supply chain of components, giving place to a shortage of automobiles due to supply delays.


Relocation and diversity of manufacturers as responses to production delays

Given the complexity of restoring microprocessor supplies to meet the demand of different industries and stabilize manufacturing dynamics in the automotive sector, various markets relevant to vehicle production have reacted with proposals to encourage component manufacturing in new areas. Mexico is a case in point.

Global microchip production is concentrated in Asia, where a few countries hold a significant market share. Taiwan and South Korea stand out among global manufacturers, accounting for 66% and 17% of the total. The disruptions caused by mobility restrictions from these markets played a crucial role in distribution issues.


That’s why, as is happening as a trend for different sectors, there’s a trend of relocating manufacturing processes that emerged from the 2020 health emergency, and the rethinking of supply chain operations is gaining traction.

Given the limitations in obtaining inputs, Mexico, a country that has climbed among automobile manufacturers in recent decades thanks to the existence and promotion of areas like the automotive cluster in the Bajío and the industrial park in Guanajuato, is showing interest in promoting local manufacturing of components, joining an initiative by the United States.


A plan that would modify the known schemes

In its plan, the United States aims to reduce dependence on Asian production by bringing its supply chain processes closer, for which the Latin American country has become an important ally, thanks to the existing infrastructure in Jalisco and Baja California. According to spokespeople from the Mexican National Automotive Parts Industry, the objective is to carry out the programming of devices in Intel, WalCom, and Skyworks facilities.


Mexico, a market with proven technical capacity

In addition to its proximity to the United States, which seeks to regularize the productivity of its industries while reducing operational and transportation costs through the nearshoring strategy, Mexico has a proven technical capacity to face the production phases of the technology industry.

The country has been a receiver of automotive manufacturers for decades due to the market size and the opportunities to serve other Latin American regions as a production center. Different technology companies have activities related to the pharmaceutical industry, the production of home appliances, and there’s even a prominent participation in the aerospace industry, with Tier 1, Tier 2, and Tier 3 suppliers based in regions like Querétaro, Sinaloa, and Baja California. These companies supply some of the world’s most influential American and European manufacturers.

In the car industry, the automotive cluster in the Bajío and the industrial park in Guanajuato would be involved in the processes due to their relevance to Mexican automotive manufacturing.

Although the general outlines of the plan have been drawn since the United States decided to promote the production of components in North America, with a plan that includes a $52 billion investment in Ohio, the process requires time for the activity to begin: the manufacturing of semiconductors depends, partially, on the availability of robots that carry out precision work, and their prior manufacturing is the first step in the plan to have the electronic parts in whose final stages of elaboration Mexico will support.

In a global context where nearshoring is gaining relevance, Frontier Industrial offers industrial land for sale, industrial buildings for lease, and high-quality infrastructure for developing productive processes for companies in various industries, and tailor-made project development to carry out industrial operations. If your company is considering relocating to the main industrial markets in Mexico, such as the industrial park in Guanajuato, do not hesitate to contact us.