Demand-Supply Reversal in Early 2021-2024, Semiconductor Supply Chain to Re-examine 3 Areas [A.T. Kearney]

A.T. Kearney (Tokyo, Japan; Representative: Takefumi Harigaya) has published "Shoring up the semiconductor supply chain," a paper that reviews semiconductor manufacturers' supply chains and outlines areas semiconductor fabs should consider.

This paper notes that the semiconductor industry has shifted from a supply shortage in 2021-2022 to a supply glut from 2023 to early 2024 in a short period. It identifies capital investment, human resource investment, and the advancement of planning functions as key issues for the recovery phase. Specifically, it points to examining three areas—industry trends, fab operations, and fab planning functions—as major themes for strengthening semiconductor manufacturers' supply chains.

The paper also categorizes semiconductors as core components for AI, autonomous driving/electrification, more efficient and sustainable aircraft, defense, and hyperscale data centers. While the importance of the semiconductor industry is growing, requiring the construction of more reliable and sustainable supply chains, challenges such as speed to market, diversification of demand, customer expectations for customization and personalization, product complexity, and post-pandemic supply chain changes are increasing the difficulty of adaptation.

1. Demand-Supply Reversal in Early 2021-2024, Examination of 3 Areas as Key Issues for Recovery

The semiconductor industry has traditionally been cyclical. Recently, it shifted from a supply shortage in 2021-2022 to a supply glut from 2023 to early 2024 in a short period. This paper notes that companies are cautiously assessing signs of demand recovery to secure a first-mover advantage.

There are also differences in the planning for this recovery phase compared to the past. The industry is becoming polarized into leading-edge and mature segments, and the importance of integrating multiple chips into a single package, similar to single-chip integration, is increasing. These changes are attributed to demand diversification and geopolitical factors.

2. Six Planning Gaps as Barriers, Three Shortages as Challenges to Achieving Plans

This paper identifies gaps in fab planning functions across six areas—forecasting models, demand planning, supplier relationship management, component and material planning, inventory management, and production execution—that hinder the achievement of planning objectives. Common challenges across these areas include the lack of accurate forecasting, flexibility for optimization, and rapid change management.

To achieve maximum productivity during the demand recovery period, it is necessary to increase capital and human resource investments in the preceding phase. Furthermore, robust systems to respond to fluctuations in demand and geopolitical risks, adaptation to high-mix, low-volume production, and managing an increasing number of concurrently operating process nodes are required. Daily manufacturing operations demand a high level of proficiency in demand planning, supply planning, and material planning.

3. Focus on 2 Relational Axes and 4 Functions, Interlocking Demand, Supply, and Material Planning as Key Issues

This paper focuses on forecasting and demand planning related to customer relationships, and relationship management and component/material planning related to supplier relationships within fab planning functions. This organizes planning functions related to both the demand and supply sides.

Future semiconductor manufacturers will be required not only to identify signs of demand recovery but also to increase capital and human resource investments before the recovery to establish a system capable of maximizing productivity during the demand recovery period. Additionally, maintaining a high level of proficiency in demand planning, supply planning, and material planning in daily manufacturing operations will be a key issue to respond to fluctuations in demand and geopolitical risks.

- About the Paper

• Paper Title: "Shoring up the semiconductor supply chain" (English)
• URL

https://www.kearney.com/documents/291362523/301255868/Shoring+up+the+semiconductor+supply+chain.pdf/9ebe9b15-e717-9ce0-0f29-1398cd0eb6bb?t=1716313975685

• URL (Japanese Page): "半導体サプライチェーンの強靭化"

https://www.jp.kearney.com/issue-papers-perspectives/shoring-up-the-semiconductor-supply-chain

- Supervisors

Kakuya Nishikawa, Senior Partner

Graduated from the Faculty of Engineering, The University of Tokyo. After working at a patent firm, joined A.T. Kearney. Supports M&A strategies that create demand by adding new technological axes to current ones, and the creation of new value (business models, operational models) leveraging IoT.

Kiyoshi Takei, Principal

Completed MBA at MIT Sloan School of Management. After engaging in business strategy planning and alliance negotiations with overseas companies in the corporate planning department of Toshiba's semiconductor business (now Kioxia), joined KEARNEY. Focuses on themes such as corporate strategy, business portfolio transformation, new business development, and M&A strategy, primarily in the telecommunications and high-tech sectors. Capable of leading cross-border projects.

- About A.T. Kearney

A.T. Kearney (global brand name KEARNEY) was founded in Chicago, USA, in 1926 and entered Japan in 1972. Its greatest strengths are its high level of expertise, delivery of tangible results, and close collaborative work with client companies. It currently has bases in over 40 countries worldwide, with approximately 5,900 staff and a global network. Its main clients include Global 1000 companies across all major industrial sectors, as well as major companies and government agencies in various countries. It provides consistent, high-quality services ranging from strategy to operations and IT. For more information, please visit our website: https://www.jp.kearney.com/