Design your way out of the global chip shortage

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Management teams are working hard to mitigate the damage the global semiconductor chip shortage is causing to their businesses. But many overlook a critical factor that can position their business for a much smoother journey through this turbulent time: the engineering team.

With chips now playing a vital role in all kinds of products, the shortage has hampered a wide range of industries. Despite all the efforts of companies to counter its effects, some manufacturers have been forced to reduce their annual production volume by up to 25%.

The problem, as many executives painfully know, is that there are no quick fixes. While there is now a light at the end of the tunnel, we expect the current shortage to last until at least the second quarter of 2022. Moreover, the reality is that we are going to see more of these kinds of chain disruptions. global supply in the future, and probably not just semiconductors.

Most management teams use a range of tactics to deal with the immediate effects of the shortage. Some created “war rooms” at the onset of the shortage to map their response and revamp their supply chain strategy. Many have expanded their stockpile of products to create a buffer against shortages. Companies have also improved the accuracy and duration of demand forecasts, and some have used pricing to direct customers to their most widely available products.

These tactics have certainly made a difference, but they don’t get to the root of the problem. Leading companies go even further. They look to their engineering team to quickly adjust the way the company designs its products, to mitigate supply chain shocks faster and more effectively, with a focus on two key capabilities: design for resilience and design for availability.

Designing for resilience is a preventive approach. Engineers do this when the business isn’t facing an impending supply disruption, but the business always sees a reason to prepare for that eventuality. This means that the company has enough time to design a product to avoid relying on vulnerable components and build in more flexibility. This could happen upstream, before a product is on the market, or it could happen when a product is already on the market and would benefit from a more fundamental and deep overhaul.

Design for availability comes into play when there is already a disruption in supply and the company must make urgent, targeted product adjustments to respond quickly, using available components.

Designing for resilience

Leading companies are constantly refining their products to increase resilience, ideally starting early in product development and before a supply disruption hits.

If a company hasn’t made resilience a central part of their engineering approach to date, a deeper, fundamental overhaul of the product might make sense. Key Considerations: Does the engineering team have the mandate and skills to redesign the product architecture to reduce reliance on risky components that are custom made or depend on a small number of suppliers? Is the business prepared to sacrifice functionality that depends on vulnerable components? Is the company confident that it has enough time to procure the necessary components for as long as the redesign takes?

Firms with more resilient product portfolios can withstand future supply shocks more effectively than the competition. This allows them to minimize their exposure to disturbance and facilitates rapid response and adjustment of their products, if necessary. Indeed, when it is most successful, the design effort for resilience may go completely unnoticed by the outside world, as component shortages do not appear to affect the product or the business of the company.

In our work with clients and our analysis of the global landscape, we have found that several specific attributes tend to improve the odds of a successful resilience strategy.

First, large companies decouple software from hardware. In the case of a chip shortage, for example, the less “hooks” the product has in the silicon, the better. When hardware cannot be controlled, large companies make hardware less critical to the product and increase reliance on software by adding a flexible middle layer to the firmware.

Second, the modularity of the design can pay huge dividends. Leading companies use standard approaches and flexible product architecture where possible, including adding additional time to test and qualify multiple acceptable parts. For example, Acer, the Taiwanese hardware and electronics company, said in October that it intended to design a “different kind of product” that will give it a wider selection of device component resources, as the company seeks to counter the current chip shortage and rising semiconductor prices.

Third, companies are looking for ways to isolate the components of a product. With fewer interdependencies between teams and products, the work involved in redesigning a single part in the event of a shortage becomes self-sufficient and less intimidating.

Finally, reducing the number of parts in a product and reusing components where possible can make the product less susceptible to supply chain issues.

Leading companies incorporate these principles of resilience into product design by incorporating standard and approved parts into their product design and computer-aided design toolkits; set incentives aligned with desired outcomes, such as percentage of reused or personalized parts of a product; strengthen collaboration between engineering, sales and procurement teams; and work directly with suppliers to design critical components to ensure their availability and reliability.

The result should be a long-term roadmap and an understanding of how to simplify product architecture and move away from parts or components that could become supply chain bottlenecks.

Design for availability

Companies that are effective at designing products for resilience have prepared well to respond to supply chain shocks that require more urgent product adjustments as they actively (or imminently lose) sales. If successful, the company quickly puts an almost identical product back on the market. Even a simple adjustment can make a difference. During the recent chip shortage, automaker Stellantis replaced digital speedometers with analog ones in one of its Peugeot models, allowing the company to bypass a significant production hurdle. But designing for availability requires a different set of capabilities.

The most successful companies start by deploying an agile team, equipped with the skills to complete the redesign quickly and effectively, and give them a clear set of goals and incentives to complete the project. This type of effort should be focused only on improving areas affected by the supply shortage and usually does not warrant a full product design team. The most efficient agile engineering teams quickly modify the software to accommodate new parts, adjust the current product to free up resources for more important functionality, and use rapid prototyping and testing to validate new designs.

How can businesses strengthen their design muscles for uptime? One useful tactic is to continue to use agile teams for other strategic purposes, even after the supply shock has passed. For example, asking them to continually refine products to reduce costs. That way, these teams continue to add value while still being ready for action in the next disruption.

Tesla’s investments in designing products for both resilience and availability have paid off during the current chip shortage, and the company’s experience shows how the two engineering capabilities can be mutually reinforcing. The electric vehicle manufacturer’s decision to use standard semiconductor hardware but to develop the software that runs on these chips in-house has given the company more flexibility in the components to manufacture its vehicles. Faced with a shortage of its typical microcontroller units (MCUs), the company’s agile software development capabilities and modular technology architecture have helped it rapidly develop and validate 19 new alternative MCUs, while simultaneously developing firmware. for new chips manufactured by new suppliers.

Executives increasingly recognize that the ability to design both availability and resilience can help their businesses manage short-term supply shocks and prepare for the future. But the most successful companies will become so efficient at designing for resilience that they seldom need to design for availability; if they do, it will be a much faster and smoother process. The result will be businesses that are better equipped to handle any supply chain disruption that arises.

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