Risk management is a staple of good supply chain and business strategies, and disruptions are, unfortunately, part and parcel of the global semiconductor supply chain, at some point affecting each of us. Environmental issues have affected weather patterns, intensifying extremes and forcing us to deal with some serious issues and risks – presently the building drought issues in Taiwan, western United States, and Brazil are on the top of global concerns across industries. For the semiconductor industry, these are serious risks to our supply chain, particularly for chip manufacturing which is a water intensive process. Next week, I will be contributing to an Earth Week series for Electronics Purchasing Strategies looking at these issues and strategic considerations to best prepare for disruptions. The following is a preview of the discussions.
Environmental challenges on the rise
The manufacturing of semiconductor chips is very water intensive, as a result, back almost a decade ago, in the face of the previous severe drought in Taiwan, both of the global chip manufacturers, Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC), instituted state-of-the-art water reclamation and recycling capabilities and alternate water supply strategies. The water recycling capabilities implemented almost a decade ago mean that these facilities in Taiwan recycle up to 90% of their water. This is a critical business and environmental capability. These two leading companies, both with major foundries located in Taiwan, supply a majority of chips to global leaders such as Apple and Qualcomm, as well as to the wider semiconductor industry. Currently, the Taiwanese government is looking at the likelihood of having to shut off water to industrial facilities two days per week, a plan that is not too distant from what California's Governor Jerry Brown is considering for reducing California's water use by 25%.
In the case of TSMC and UMC, their risk management and disruption strategies are likely to be tested again and should the water be shut off at their foundries in Taiwan two days per week, roughly a 20% reduction in water, they will transport additional water in by truck, a costly alternative but one that allows to meet any gaps between what they recycle and still need if and when the water is shut off by the government. Otherwise, they cannot run the lines. Water management is now part and parcel of TSMC and UMC's business (and risk management) strategies, recognizing the risk from both floods and droughts, which actually go hand-in-hand. The question begs, are other companies around the world as ready as TSMC and UMC to meet the mounting environmental challenges posed by intensifying and short-cycled, extreme weather patterns?
Distributor's vantage point - risk mitigation
Over the past three decades that Smith & Associates has been part of the semiconductor and electronics supply chain, we've seen a fair amount of disruption caused by social and political unrest, natural disasters, extreme commodity fluctuations, material shortages, and economic disruptions during boom and bust times. As a distributor, we have the vantage point of seeing both sides of the supply chain, from upstream production down through assembly and onto end-product distribution and warranty and repair services.
Smith offers customers critical elements for successful disaster mitigation strategies in advance of disasters. We support customers by providing the secure, alternative sourcing capabilities, by having in place on-site quality audits, agreed upon requirements and preferences, processes and procedures for sourcing, inspection, and delivery. As a result, when/if disaster strikes, proactive manufacturers gain access to our capabilities as a global, leading semiconductor and electronics distributor. As a result, Smith's customers are the first to receive their in-demand components, so that they are able to keep product moving along a now re-routed supply chain. Smith's on-site quality testing laboratories, which are ISO 17025 certified and have accredited quality professionals certified to ISO 9001 and 14001 standards.
The ability Smith has to conduct functional and quality tests in-house is particularly important during periods of disruption because these are the times during which counterfeit activity tends to rise. Smith's 30-year, detailed database of components in concert with our highly-skilled, leading-edge quality professionals ensures that our customers receive the highest quality products. Smith's Global Services offer a full suite of solutions customized to the unique needs and strategic goals of our customers so that their market agility can be safeguarded even during the most challenging events.