Operating A Small Business During A Semiconductor Shortage

Operating a small or medium size business is not easy. It is especially difficult if your business competes with national and multinational corporations. At North Consulting Services we are here to help answer questions, strategize and work together to help your small business excel. With the current semiconductor shortage, many small businesses are having operational issues and need help with crisis management. In this blog, we will take a more in-depth look at what the shortage has meant for small businesses, and unique ways some are combating it. 

What Is A Semiconductor?

Semiconductors are small silicon chips that all modern electronics require to operate. With a growing reliance on technology, almost every business uses some form of a computer. Whether used for payment processing, production, manufacturing, or simply communicating with customers, computers are an essential part of running a business. As the need for computers has increased, so has the demand for semiconductors. 

Why Is There A Shortage?

With the increased demand for semiconductors over the past few years, chip manufacturers have been forced to play catch-up. The COVID-19 pandemic caused many of these manufacturers to close their factories, which slowed production to a crawl. Because the pandemic forced many people to work or attend school from home, the demand for personal electronics skyrocketed. The run on consumer electronics was further exacerbated but many Americans with excess disposable income as a result of enhanced unemployment and government stimuli. Many businesses were also making investments in technology as a result of the Paycheck Protection Program. The lack of production combined with the increase in demand, left many manufacturers unable to produce adequate inventory and retailers unable to keep up with demand.  

When semiconductors first became commonplace in the production of electronics, many were manufactured in the United States. In 1990, thirty-seven percent of chips sold in America were made in the United States. By 2020, that number dropped to twelve percent. The outsourcing made semiconductors much cheaper to manufacture, but meant the chips, and the products they are used in, had to travel further to reach our shores. Delays in international shipping increased in 2020 due to the pandemic, and because most semiconductors are produced offshore, they became extremely difficult to obtain.  

Due to the shortage, large corporations like Microsoft and Apple overcompensated by ordering excessive amounts of semiconductors. This overcompensation by some of the largest corporations in the world led to a backlog of orders for smaller manufacturers. Because of this backlog, small business have seen their orders pushed to the bottom of the list. 

 

Who Does This Affect?

Manufacturing And Production Businesses

Transtec Group in Austin, Texas, sells small sensors that take the temperature of an area where concrete has been poured. The sensors relay that information to computers which are programmed to ensure the concrete is hardening properly. These sensors need semiconductors to operate. Due to the scarcity of the chips, Transtec is worried they won’t be able to make enough sensors to meet demand.

Gametime Technologies Inc., a small company in Quebec that makes portable scoreboards, has been out of chips for months. The owner, Filip Ivanovski, stated that he expects to lose half of his revenue this year because his company does not have enough semiconductors to make their scoreboards. 

According to the Washington Post, even dog-washing businesses are suffering. CCSI, a company that makes electronic dog-washing booths in Illinois, was recently told by its circuit board supplier that their chips were not available. The business was offered a different type of computer chip, but that required the company to adjust its circuit boards, raising costs.  

Startup Businesses

While many small businesses are in the manufacturing industry, others just simply need computers to operate. It has been especially tough for startup businesses who have not been able to get off the ground due to the shortage. Hal Hodson, a technology correspondent at the Economist believes that it may take a couple years or more for startups to enter the market because semiconductor supply is backed up until 2023. 

Dexai Robotics is a startup company in Massachusetts that has created a completely robotic sous-chef. Co-Founder and CEO David Johnson, said that they have had to scour the internet to find the last few components available that were required to complete their robot. Additionally, he said they have resorted to buying used components, which in some cases, has forced the company to completely change their design. The circuit boards that semiconductors attach to are almost exclusively manufactured in Asia, so Dexai Robotics has started teaching their employees how to attach the semiconductors themselves. 

Consider hiring a startup consulting firm to help your startup get off the ground. We can also help you manage a crisis like a material shortage and make a plan to insulate your business from future crises. 

How Some Are Combating The Shortage

Dakota TV & Appliance, a small electronics store in Grand Forks, ND, has made a point to keep large stocks of easily attainable appliances. Their stock of popular large appliances cannot easily be replenished. The semiconductor shortage has slowed production of major home appliances significantly. Dakota TV stockpiles these smaller appliances so that if a customer needs a replacement appliance, they at least have an option. While it may not be the model or make the customer was looking for, it does provide the customer with a temporary solution. 

In May of 2021, a group of manufacturers, investors and small business leaders in Canada co-founded Canada’s Semiconductor Council. Their goal is to build a strategy to bolster Canada’s semiconductor supply chain. They hope this will position Canada as a future major player in the global semiconductor market. The council says their main aim is to ensure that small businesses have peace of mind in case of any future shortages.

Tech giant Intel announced recently they plan to spend $20 billion on the construction of two new chip plants in Arizona. The U.S. Senate also passed a bill in June that aims to provide hundreds of billions of dollars to boost U.S. development and manufacturing in areas including artificial intelligence, quantum science, and 5G networks. 

In Conclusion

While the semiconductor shortage is predicted to last for at least another year, there is optimism going forward. Governments, businesses and organizations are continually coming up with solutions so that this kind of shortage does not repeat itself. Big corporations almost always bounce back, but small businesses have needed to find creative ways to adapt.

Finding Help

Combating the semiconductor shortage is no easy task. If you are unsure of how to proceed during this shortage or need help preparing for any other crisis, please CONTACT US at North Consulting Services. We offer a wide array of consulting services to meet your small business needs.