The Chip Shortage Is a Visibility Problem You Already Had

A Part Nobody on Your Supplier List Makes

The most expensive part shortage in years is hitting companies that have never placed a purchase order for the part.

General Motors idled assembly plants in Kansas, Ontario and Mexico last month because it could not get enough semiconductors. Ford warned investors in February that the shortage could reduce its earnings this year by one to two and a half billion dollars. AlixPartners estimated in January that the shortage would cost the global auto industry about $60.6 billion in revenue in 2021. None of these companies buys most of its chips directly. The chips arrive inside modules and subassemblies built by suppliers, who buy them from distributors, who buy them from fabs that reallocated capacity to laptops and game consoles when auto demand collapsed last spring.

If you are a mid-market manufacturer, you may be reading this and thinking it is somebody else's problem.

If you are a mid-market manufacturer, you may be reading this and thinking it is somebody else's problem. It is worth checking that assumption, because the mechanism that caught the automakers is not specific to chips. It is the gap between what your ERP knows about your supply base and what your supply base actually depends on.

Your ERP Knows Your Suppliers, Not Theirs

Open your ERP and you will find a clean list of approved suppliers, item numbers, prices and quoted lead times. What you will not find is any record of what those suppliers depend on. The controller board from your tier-one supplier contains a microcontroller from a single fab. The casting from your foundry depends on one coating line. The resin your molder uses comes from two plants, one of which shut down after last month's freeze in Texas.

That gap is normal. Very few small and mid-market companies map their supply chain past the first tier, and almost none keep that map inside the system they plan with. The result is that disruption arrives as a surprise from a supplier you trusted, usually as a lead time that quietly doubles or a confirmation that never comes.

The automakers had more data than most of us and still got caught. The lesson is not that the problem is unsolvable. It is that visibility has to be built on purpose, before it is needed, and it starts with a much smaller list than you might expect.

Start With the Parts That Can Stop a Line

You do not need to map every part. You need to know which ones can stop a line.

Start with your bills of material and ask three questions of each purchased component. Is it single-sourced? Does it contain electronics, specialty materials or anything else with a concentrated global supply? And if it disappeared for eight weeks, would you miss shipments? The parts that answer yes to the last question, and to either of the first two, are your critical list. For most plants that list is a few dozen items, not thousands.

For those parts, go one level deeper. Ask the supplier directly where the sub-components come from and what their own lead times look like. Many will tell you, especially now. Record the answers somewhere your planners actually look, ideally as attributes on the item in your ERP rather than in a spreadsheet on someone's desktop. A flag on the item master that says "contains semiconductor content, single fab" is worth more than a fifty-page risk study nobody opens.

Measure Lead Times Instead of Trusting Them

The second piece of visibility is already in your system and almost nobody uses it. Every receipt carries the date the order was placed and the date the goods arrived. The difference is the actual lead time. Compare it to the lead time in the item master, which is usually whatever the supplier quoted years ago, and you have an early warning system.

When actual lead times on a critical part start drifting longer, you know before the supplier tells you. When they drift past the planning lead time, your MRP is already ordering too late. A simple monthly report of actual versus planned lead time on the critical list catches most of the trouble that is coming, weeks before it arrives.

Do Not Answer a Shortage by Ordering Double

There is a predictable failure that follows every shortage, and it is starting now. Buyers who were burned once order twice as much, from two suppliers, with longer horizons. Every customer in the chain does the same, the orders upstream balloon far past real demand, and the suppliers allocate capacity to the loudest buyers. When the shortage eases, everyone is left holding inventory they did not need.

The defensible version is targeted. Raise safety stock on the critical list, where the cost of a stockout is a stopped line, and leave the rest of the catalog alone. Share honest forecasts with critical suppliers so they can plan capacity, rather than padding orders and hoping. And write down what you changed and why, so that the extra stock comes back down when conditions normalize instead of becoming permanent.

The Bottom Line

The chip shortage will end. The structural problem it exposed will not: most manufacturers plan against a supply base they can only see one layer deep. The fix is not exotic. It is a short critical-parts list, supplier questions asked before the crisis rather than during it, actual lead times measured from data you already have, and buffers placed where they protect the line.

At Cherry Street, this is the work we do. We help manufacturers find the parts that can stop a line, put that knowledge into the ERP where planners will use it, and build the lead-time reporting that turns a supplier surprise into an early warning.