Yesterday — Friday, September 24 — the Department of Commerce published a Request for Public Comments in the Federal Register. This RPC (sometimes RFI) is focused on providing the government with information that might assist in efforts to mitigate the persisting disequilibrium of demand and supply for semiconductor chips. According to the RPC:
With the goal of accelerating information flow across the various segments of the supply chain, identifying data gaps and bottlenecks in the supply chain, and potential inconsistent demand signals, the Department is seeking responses from interested parties (including domestic and foreign semiconductor design firms, semiconductor manufacturers, materials and equipment suppliers, as well as semiconductor intermediate and end-users) to the questions set forth in this notice.
The federal government must be better equipped to get ahead of possible disruptions and have tools at its disposal to limit their impact on the U.S. economy, workers, and consumers. When supply chain shocks cascade, the spillover effects can impact the global economy in ways that no one firm or sector can anticipate or adequately resolve on their own. By taking a holistic view of the industrial base and supply chains critical to US economic and national security, the federal government can monitor, anticipate, and respond to economic, geopolitical, and climate-related shocks.
Secretary Raimondo was pointed in her call for greater transparency:
What’s still not clear is what specifically is happening. For example, I don’t know who is overordering or who is not supplying at the levels expected. Frankly, I’m not interested in pointing fingers. I’m interested in solving the problem. There’s so little transparency across the board. And that can’t continue.
The Federal Register asks specific and detailed questions.
The Department is specifically seeking the following information and data:
1. For semiconductor product design, front and back-end manufacturers and microelectronics assemblers, and their suppliers and distributors:
a. Identify your company’s role in the semiconductor product supply chain.
b. Indicate the technology nodes (in nanometers), semiconductor material types, and device types that this organization is capable of providing (design and/or manufacture).
c. For any integrated circuits you produce—whether fabricated at your own facilities or elsewhere—identify the primary integrated circuit type, product type, relevant technology nodes (in nanometers), and actuals or estimates of annual sales for the years 2019, 2020, and 2021 based on anticipated end use.
d. For the semiconductor products that your organization sells, identify those with the largest order backlog. Then for the total and for each product, identify the product attributes, sales in the past month, and location of fabrication and package/assembly.
i. List each product’s top three current customers and the estimated percentage of that product’s sales accounted for by each customer.
e. For each phase of the production process, identify whether your organization carries out the step internally or externally. For your organization’s top semiconductor products, estimate each product’s (a) 2019 lead time and (b) current lead time (in days), both overall and for each phase of the production process. Provide an explanation of any current delays or bottlenecks.
f. For your organization’s top semiconductor products, list each product’s typical and current inventory (in days), for finished product, in-progress product, and inbound product. Provide an explanation for any changes in inventory practices.
g. What are the primary disruptions or bottlenecks that have affected your ability to provide products to customers in the last year?
h. What is your organization’s book-to-bill ratio for the past three years? Explain any changes.
i. If the demand for your products exceeds your capacity, what is the primary method by which your organization allocates the available supply?
j. Does your organization have available capacity? If yes, what is preventing the filling of that capacity?
k. Is your organization considering increasing its capacity? If yes, in what ways, over what timeframe, and what impediments exist to such an increase? What factors does your organization consider when evaluating whether to increase capacity?
l. Has your organization changed its material and/or equipment purchasing levels or practices in the past three years?
m. What single change (and to which portion of the supply chain) would most significantly increase your ability to supply semiconductor products in the next six months?
2. Questions for intermediate users and end users of semiconductor products or integrated circuits:
a. Identify your type of business and the types of products you sell.
b. What are the (general) applications for the semiconductor products and integrated circuits that you purchase?
c. For the semiconductor products that your organization purchases, identify those that present the greatest challenge for your organization to acquire. Then for each product, identify the product attributes and purchases in 2019 and 2021, as well as average monthly orders in 2021. Then estimate the quantity of each product your organization would purchase in the next six months barring any production constraints as well as the amount your organization expects to actually be able to purchase. For each of your organization’s top semiconductor products, estimate each product’s lead times and your organization’s inventory for (a) 2019 and (b) currently (in days). Provide an explanation of any current delays or bottlenecks.
d. What are the primary disruptions or bottlenecks that have affected your ability to provide products to customers in the last year?
e. Is your organization limiting production due to lack of available semiconductors? Explain.
f. What percentage of your current production has your organization had to defer, delay, reject, or suspend in the past year? Explain.
g. Is your organization considering or carrying out new investments to mitigate semiconductor sourcing difficulties? Explain.
h. What semiconductor product types are most in short supply and by what estimated percentage relative to your demand? What is your view of the root cause?
i. Has your organization changed its material and/or equipment purchasing levels or practices in the past three years?
j. What single change (and to which portion of the supply chain) would most significantly increase your ability to purchase semiconductors in the next six months?
k. What percentage of your orders are fulfilled by distributors versus through direct purchase orders to semiconductor product manufacturers?
l. For the semiconductor products your organization purchases, how long (in months) are the typical purchase commitments? How, if at all, do your organization’s purchase commitments differ for products in short supply?
m. Has your organization faced “de-commits” (defined as a notification from a supplier that expected or committed supply will not be delivered in the agreed-upon time and quantity) in recent months? If this is a significant issue, please explain ( e.g., nature of product, supplier, impact).
These are reasonable questions in search of rational, logical, straightforward (linear?) answers. Those asking the questions realize these answers will often be difficult. It is not clear to me that those asking the questions understand how difficult. It is not clear to me that those asking the questions realize that by the time they receive earnest answers, most of the answers will be moribund. (And there will be some share of superficial, cynical, and grossly self-interested answers. There will also be meaningful silence.)
When accurate answers regarding demand and supply networks are possible, they will often have a half-life of a month, week, day, or a few hours. In the context of high volume, high-velocity demand and supply networks, accuracy is an exponentially decaying quantity and quality. As an indicator of strategic flow, an answer’s half-life can still be helpful… if the limitations of half-life are accepted. But depending on time elapsed, the most complete answers will take on that quaint quality of once-great value now deeply diminished. My grandmother’s silver tea service leaps to mind.
The Federal Register asks for answers to be received by November 8. This suggests that accurate answers will be based on something close to reality as observed in late September or early October. With extraordinary effort, the answers may be analyzed and assessed by early December. At year-end the answers offered will be about as relevant to problem-solving the chip shortage as our retrospective understanding might mitigate the Irish potato famine of the 1840s. It is too late.
[The next post suggests a different set of questions with a different action orientation.]