Security & Identity Trends Series Part 2: Supply Chain Challenges
Ongoing supply chain challenges have caused a significant reduction in the availability and prices of all types of goods. Grocery shelves have huge product gaps, beef prices have skyrocketed and the recent scarcity of new cars and trucks has driven the used car market to new highs. The supply chain issues have proven to be a significant disruptor in the security and identity industry as well.
As our recent report on the top security and identity trends explains, semiconductors, also known as integrated circuit chips or IC chips, have been in short supply across the globe. Victim to the same constraints and challenges as other industries, the global semiconductor shortage has caused significant impact to organizations’ physical and cybersecurity initiatives.
Why Is There a Semiconductor Shortage?
A U.S. Commerce Department report indicated that “the median inventory of some semiconductor products had fallen from 40 days in 2019 to less than five days in 2021.” But what’s causing IC chips to be in such short supply? The same report describes a “perfect storm of factors” that began prior to COVID-19. The report cites difficulties in procuring the inputs for production, coupled with an underlying shift in demand toward products requiring semiconductors in order to function, including consumer electronics and vehicles. When the pandemic hit, shutdowns exacerbated an already troubled supply chain. As the manufacturers that use chips pulled back on spending, semiconductor producers idled some of their capacity. When economies started to reopen, pent-up demand created a surge that chip makers could not meet even as they ramped up production.
Tech Wire Asia reported on the global semiconductor shortage, noting that chip manufacturers were rushing to build greater capacity into supply chains, but diversification was needed to reduce reliance on IC chips produced in Asia. In fact, the recent passage of the CHIPS Act allocates funding to boost U.S. production. Currently, only about 12% of semiconductors are made in America, down from 37% in 1990, and the bill seeks to reverse that trend. The bill has been widely recognized for laying the groundwork for growth and innovation, although the shortage is predicted to potentially persist until early 2023.
What Impact Does the Semiconductor Shortage Have on the Security Industry?
The global semiconductor shortage is occurring during a time when the security and identity industry is undergoing profound change. Pressures both internal and external to the market are reshaping the security landscape, driving digital transformation and modernization. Integrated circuit chips are essential components in countless security devices, such as control panels, card readers, sensors, detectors and even electronic door locks.
Compounding the issue, as inflation increases and supplies dwindle, prices have inevitably increased. For example, as early as September 2021, Taiwan Semiconductor Manufacturing Company announced its biggest price increase in over a decade. Although the CHIPS Act offers future promise, it will still take time for chip manufacturers to build the infrastructure needed for them to increase capacity.
Our Vice President of Supply Management, Josh Freeman, recently spoke with Supply and Demand Chain Executive offering this explanation, “The security industry is affected by the same supply chain challenges plaguing everyone. Semiconductor shortages are especially problematic across all types of security solutions. Nevertheless, supply availability and security risks must be mitigated. Ongoing shortages pose significant challenges to how the industry secures people, data and physical assets against an expanding and ever more complex threat landscape. Vendors and security administrators need to consider a variety of strategies and approaches.”
How Security Professionals Can Navigate the Semiconductor Shortage
The global semiconductor shortage will eventually get better, but what strategies can the security industry lean into while supply chain problems persist?
Develop and Maintain Partnerships
At the top of the list of approaches is to work with partners that have global strength with a local presence. These providers will typically have more reach when it counts and the longevity to weather the storm should other, unexpected disruptions occur.
It’s also important to remain flexible. Until supply chain issues resolve, consider alternative products. Work with a supplier that has a deep portfolio where you’re more likely to find choices that meet your needs.
Take Advantage of Data
Don’t shy away from analyzing data. Most likely you have readily available information that helps you better understand and predict buying patterns that can support forecasting efforts. This kind of visibility is invaluable when it comes to need and lead times for hard-to-find components.
Communicate and Be Patient
Make sure you’re keeping an open dialog with partners and suppliers. Communication is key and can shine a light on supply options and provide early warnings as the environment changes. Most of all, be patient. The global semiconductor shortage has created massive change that’s been nothing short of challenging for everyone, including the operations and customer service teams who are working to address the shortages and minimize customer impact.
While the Chips Are Down
We live in a world where semiconductors are needed to run everything from toothbrushes and toys to smartphones and automobiles. That’s not going to change anytime soon. As we create more powerful devices — security devices included — the world will need more semiconductors.
Right now, the semiconductor shortage shows up most notably in lead times, which are anticipated to ease as the U.S. prepares to produce more chips and demand stabilizes. The trillion-dollar question for the world economy will be when this equilibrium will be found. In the meantime, the security industry will continue to face challenges and find creative ways to respond.
To learn more, you can take a deep dive into the supply chain trend or get your full copy of the 2022 Security & Identity Trends Report. We’ll continue our Security and Identity Trends blog series in part three with a look at sustainability.
Kym Elizondo-Cowley is the Senior Manager of Content Strategy with HID Global who brings more than 20 years of experience in writing and content marketing to the security industry. Before joining HID Global in 2018, Kym served as a content strategist, blogger, writer and marketer for organizations in the B2B and B2C SaaS and technology sectors, including roles at Blucora and Microsoft. She is based in Austin, Texas.