What's actually "chip shortage"?

[TimFox]

Back in grad school (physics), when conversing with economics students, I discovered that most economics situations are equivalent to either relaxation oscillators or forced damped harmonic oscillators.  The latter are usually underdamped.

[Wallace Gasiewicz]

So the "chip shortage" especially as it applies to automotive production, is a result of the current supply management system designated as "Just In Time" SORRY "Almost In Time"

Wally, former employee of an automotive manufacturer

[RoGeorge]

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.
- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.
- Just in time delivery can only explain delays at the end of chain, but won't explain a general shortage.
- Oscillations in the system doesn't make sense.  With constant production and oscillations of demand we should see stock of some other parts piling up, but I don't see that.

Other explanations would make more sense, the most probable causes IMO could be:
   1. Enforced scarcity (for political reasons, Taiwan is a hot area for some time)
   2. Monopoly industries want to raise prices (it was about time to happen after so many industry consolidations)
   3. Some new big centralized buyer(s) appeared overnight, for example military spending

Could also be because of a dystopian level story we are not yet fully aware.  For example some nation(s) might be heavily manufacturing surveillance equipment right now, to be deployed soon and enforced by law, then connected later with big data and autonomous AI weapons. 

[ataradov]

Mmmm. Following that train of thought suggests that not long after this dearth of parts there will be a glut with consequently lower pricing. If one could just hold out until then...

Why wold there be? The whole reason for this shortage is that chip manufacturers only produce parts for which there is guaranteed demand. All the parts that are made right now have been allocated. There will be no surplus.

[ataradov]

- The "people stay home buying electronic gizmos" is also hard to believe.

But people do. Look at all the chip vendor stocks, they all have been up throughout the pandemic. And the demand has been consistent.

Part of it is the money set aside for vacation, that was re-allocated to gadgets. Many people have been hurt by the pandemic, but quite a lot are doing ok. People just don't want to be vocal about it, since it is insensitive.

Established chip vendors don't make parts "just in case", they make parts for which there are orders. Car manufacturers all removed those orders. The slots were allocated to other needs. Medical device manufacturers increased their orders. PC sales were up something like 70% this year. And PCs use a lot of chips.

There is no general shortage, there is shortage in industries that failed to predict the demand.

[johnboxall]

- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.

Depends on the country, this is true in Australia. WFH cleaned out places like Officeworks and other home/office gear retailers. We waited three months to get the new TV we wanted.

[PlainName]

Mmmm. Following that train of thought suggests that not long after this dearth of parts there will be a glut with consequently lower pricing. If one could just hold out until then...

Why wold there be? The whole reason for this shortage is that chip manufacturers only produce parts for which there is guaranteed demand. All the parts that are made right now have been allocated. There will be no surplus.

It ain't oscillating if there's never too much as well as too little. Past examples include DRAM, hard drives, etc.

The fabs may only manufacture exactly what's demanded, but that demand is generated by OEMs thinking they're going to sell as many as they can get hold of to people gasping for kit, only to find they've since spent the money on something they could actually buy and don't want it now. Or there's newer flasher kit so the stuff they've over-demanded is obsolete. Many slips twixt cup and lips, you know.

[coppice]

- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.

Perhaps you need to look at this in a less shallow way. Huge numbers of people have suddenly NEEDED tools to work remotely, which they never thought they would have in their homes. They need decent mics and cameras, so their conference calls run smoothly. They may need a faster computer, a better screen, and better interactive tools like Wacom tablets, to ensure they are productive. In many cases their employers are paying for this stuff.

[ataradov]

but that demand is generated by OEMs thinking they're going to sell as many as they can get hold of to people gasping for kit,

Well, ok, there may be a surplus of finished goods. I was thinking more of surplus of parts. And that will not happen, since OEMs are on the hook to buy those parts no matter what.

[tooki]

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.
- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.
- Just in time delivery can only explain delays at the end of chain, but won't explain a general shortage.
- Oscillations in the system doesn't make sense.  With constant production and oscillations of demand we should see stock of some other parts piling up, but I don't see that.

It’s actually quite remarkable to see someone get things as wrong as this. Every single point above is demonstrably 100% wrong. They’re not speculation, they’re the documented reality of the situation. Not to mention that I and others explained these points in detail.

As for just in time delivery: what on earth makes you think only the end of the chain uses JIT delivery? The entire problem with JIT is that since everyone uses it now, a hiccup early in the chain will hold up the entire chain.

[David Hess]

One major advantage of a national supply chain ... you can centrally plan stuff. Rationing versus hoarding and creating lottery winners.

Central planning invariably leads to rent seeking and ignoring economics, making the situation worse.  For example anti-gouging laws prevent reallocation of scares resources through arbitrage, and that happens during every emergency, where politicians make it worse.

Back in grad school (physics), when conversing with economics students, I discovered that most economics situations are equivalent to either relaxation oscillators or forced damped harmonic oscillators.  The latter are usually underdamped.

And they include significant nonlinearities including behaviors like clipping and latchup.

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.

But with such long leadtimes, it initially means initial loss of capacity from delay.

- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.

Many people were forced to work from home and they made purchases to support this.  There was a significant jump in purchases for personal computer hardware.

- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.

Depends on the country, this is true in Australia. WFH cleaned out places like Officeworks and other home/office gear retailers. We waited three months to get the new TV we wanted.

That was sure true where I am near St. Louis.  The stock of computer hardware in retail stores including office supply stores was bought up early in the pandemic.  It only marginally affected the two systems I got around November because I always build my own systems, but I still had problems finding parts like cases and GPUs.

[Marco]

Central planning always does wonders for smooth predictable supply.

Sometimes it works. Partial central planning during WW2 in UK/US/Germany can't really be compared to say Mao's melting plowhshares.

[coppice]

Central planning always does wonders for smooth predictable supply.

Sometimes it works. Partial central planning during WW2 in UK/US/Germany can't really be compared to say Mao's melting plowhshares.

Central planning by the military isn't really central panning at all. Its just the customer saying what they need.

[Marco]

They want infinity of everything, they need to balance the importance of the existing economy too, impact on the population and balance the conflicting impacts on the supply chain of all their demands.

They didn't just print money and try to let the market figure it out, it wouldn't have worked either, the market can't adapt on such short time frames. Rationing and central planning was widespread.

[David Hess]

Sometimes it works. Partial central planning during WW2 in UK/US/Germany can't really be compared to say Mao's melting plowhshares.

I would say they are directly comparable.  Central planning by Germany during WW2 destroyed their logistics and production, but even more so than the UK and US:

https://youtu.be/1Oc_lFmp6vQ
https://youtu.be/CvHd1b20wdc

I would go further and say that discounting the logistical problem by Germany is what made an invasion of the Soviet Union seem feasible, when it should have been plain that it was not.  The logistical officers told them that before operation Barbarossa, but what did they know?

The same thing happens in response to natural disasters in the US.  Price controls to prevent price gouging discourage corrective actions that the free market might take, like shipping in additional supplies.  The free market correctly recognizes that situation as a loss, and avoids it resulting in greater shortages.  Of course then the free market takes the blame for not operating in a market controlled by politicians.

[schmitt trigger]

The MBA's made the same (wrong) decision that engineering managers often fall into: trying to schedule production to 100%. There is no margin or slack; the supply network is too long and too brittle to elegantly balance inductive supply with capacitive demand. Step responses like Covid throw the system into oscillation.

And with a high Q, the oscillation takes a wh to dampen down

[SilverSolder]

Sometimes it works. Partial central planning during WW2 in UK/US/Germany can't really be compared to say Mao's melting plowhshares.

I would say they are directly comparable.  Central planning by Germany during WW2 destroyed their logistics and production, but even more so than the UK and US:

https://youtu.be/1Oc_lFmp6vQ
https://youtu.be/CvHd1b20wdc

I would go further and say that discounting the logistical problem by Germany is what made an invasion of the Soviet Union seem feasible, when it should have been plain that it was not.  The logistical officers told them that before operation Barbarossa, but what did they know?

The same thing happens in response to natural disasters in the US.  Price controls to prevent price gouging discourage corrective actions that the free market might take, like shipping in additional supplies.  The free market correctly recognizes that situation as a loss, and avoids it resulting in greater shortages.  Of course then the free market takes the blame for not operating in a market controlled by politicians.

Having lived in the US for a while, I am beginning to understand that most Americans hate a free market!  -  if prices go up, it is "gouging".  If they are undercut (e.g. by China) that is also a big problem.  Basically, Americans seem to prefer a nicely planned economy where everything is locked in place! 

[nardev]

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.
- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.
- Just in time delivery can only explain delays at the end of chain, but won't explain a general shortage.
- Oscillations in the system doesn't make sense.  With constant production and oscillations of demand we should see stock of some other parts piling up, but I don't see that.

Other explanations would make more sense, the most probable causes IMO could be:
   1. Enforced scarcity (for political reasons, Taiwan is a hot area for some time)
   2. Monopoly industries want to raise prices (it was about time to happen after so many industry consolidations)
   3. Some new big centralized buyer(s) appeared overnight, for example military spending

Could also be because of a dystopian level story we are not yet fully aware.  For example some nation(s) might be heavily manufacturing surveillance equipment right now, to be deployed soon and enforced by law, then connected later with big data and autonomous AI weapons. 

This chip shortage reminds me to when Luxottica purchased RayBan brand. First thing they did was to stop manufacturing aviators for a year or even more.

The aviator glasses coasted around 10$. Now i think it's more like 100-180$

[SilverSolder]

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.
- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.
- Just in time delivery can only explain delays at the end of chain, but won't explain a general shortage.
- Oscillations in the system doesn't make sense.  With constant production and oscillations of demand we should see stock of some other parts piling up, but I don't see that.

Other explanations would make more sense, the most probable causes IMO could be:
   1. Enforced scarcity (for political reasons, Taiwan is a hot area for some time)
   2. Monopoly industries want to raise prices (it was about time to happen after so many industry consolidations)
   3. Some new big centralized buyer(s) appeared overnight, for example military spending

Could also be because of a dystopian level story we are not yet fully aware.  For example some nation(s) might be heavily manufacturing surveillance equipment right now, to be deployed soon and enforced by law, then connected later with big data and autonomous AI weapons. 

This chip shortage reminds me to when Luxottica purchased RayBan brand. First thing they did was to stop manufacturing aviators for a year or even more.

The aviator glasses coasted around 10$. Now i think it's more like 100-180$

Let's say "they" wanted to intentionally create inflation...   How would you do it?

[coppice]

Let's say "they" wanted to intentionally create inflation...   How would you do it?

Flood a market with money and you will see inflation. Lots of people say the money supply massively increased after 2008, without causing inflation. Have you looked at what happened to things like stock prices between 2008 and 2020? The newly printed money was directed there, and in other assets. In 2020 quite a bit of newly printed money went into the average person's pocket. It remains to be seen how much that affects inflation in goods and services. If the newly printed money inflates things, higher interest rates are the usual way to bring them back under control. However, since 2008 people have gotten so used to low interest rates a vast array of things have been predicated on them. Significantly raising interest rates right now would make the entire economy will fall apart. For example, high house prices are predicated on low interest rates. Housing will crash if you raise the interest rate, and people start defaulting and becoming homeless. There is a reason why homes were cheaper in the 1970s, when much of the west had high inflation. Houses normally cost about the same amount - close to the limit of what people can finance, a figure which ebbs and flows with the interest rate, which ebbs and flows with inflation.

[David Hess]

The MBA's made the same (wrong) decision that engineering managers often fall into: trying to schedule production to 100%. There is no margin or slack; the supply network is too long and too brittle to elegantly balance inductive supply with capacitive demand. Step responses like Covid throw the system into oscillation.

Management is not paid for avoiding catastrophes which *might* happen, like cops are not paid for not arresting people, and prosecutors are not paid for not charging people with crimes.

Having lived in the US for a while, I am beginning to understand that most Americans hate a free market!  -  if prices go up, it is "gouging".  If they are undercut (e.g. by China) that is also a big problem.  Basically, Americans seem to prefer a nicely planned economy where everything is locked in place! 

Like I said, most of the "free markets" in the US are not.  Politicians like to say they are, and then blame the free market for the bad results of their own policies.

[tooki]

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.
- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.
- Just in time delivery can only explain delays at the end of chain, but won't explain a general shortage.
- Oscillations in the system doesn't make sense.  With constant production and oscillations of demand we should see stock of some other parts piling up, but I don't see that.

Other explanations would make more sense, the most probable causes IMO could be:
   1. Enforced scarcity (for political reasons, Taiwan is a hot area for some time)
   2. Monopoly industries want to raise prices (it was about time to happen after so many industry consolidations)
   3. Some new big centralized buyer(s) appeared overnight, for example military spending

Could also be because of a dystopian level story we are not yet fully aware.  For example some nation(s) might be heavily manufacturing surveillance equipment right now, to be deployed soon and enforced by law, then connected later with big data and autonomous AI weapons. 

This chip shortage reminds me to when Luxottica purchased RayBan brand. First thing they did was to stop manufacturing aviators for a year or even more.

The aviator glasses coasted around 10$. Now i think it's more like 100-180$

What’s weird is that I had missed Ray-Ban’s dip to the low end. Around 1994, my optician gave me a free pair of Ray-Bans, and back then they still cost something like $70. I never look at gas station sunglasses racks, so I guess I never noticed Ray-Ban had moved into that market just a few years later!

This reminds me that I really need to get new glasses. I was about to do so a year and a half ago, and then corona came along and closed things down, and then I started my new apprenticeship, so here I am with the same worn-out lenses...

[Neomys Sapiens]

- The car industry explanation doesn't make any sense.  Less chips for cars would mean more chips for other industries.
- The "people stay home buying electronic gizmos" is also hard to believe.  What I see is exactly the opposite, people being more careful when spending for non essential goods.  Not many will impulse buy today a $2k gaming rig like it's 2019.
- Just in time delivery can only explain delays at the end of chain, but won't explain a general shortage.
- Oscillations in the system doesn't make sense.  With constant production and oscillations of demand we should see stock of some other parts piling up, but I don't see that.

Other explanations would make more sense, the most probable causes IMO could be:
   1. Enforced scarcity (for political reasons, Taiwan is a hot area for some time)
   2. Monopoly industries want to raise prices (it was about time to happen after so many industry consolidations)
   3. Some new big centralized buyer(s) appeared overnight, for example military spending

Could also be because of a dystopian level story we are not yet fully aware.  For example some nation(s) might be heavily manufacturing surveillance equipment right now, to be deployed soon and enforced by law, then connected later with big data and autonomous AI weapons. 

This chip shortage reminds me to when Luxottica purchased RayBan brand. First thing they did was to stop manufacturing aviators for a year or even more.

The aviator glasses coasted around 10$. Now i think it's more like 100-180$

What’s weird is that I had missed Ray-Ban’s dip to the low end. Around 1994, my optician gave me a free pair of Ray-Bans, and back then they still cost something like $70. I never look at gas station sunglasses racks, so I guess I never noticed Ray-Ban had moved into that market just a few years later!

This reminds me that I really need to get new glasses. I was about to do so a year and a half ago, and then corona came along and closed things down, and then I started my new apprenticeship, so here I am with the same worn-out lenses...

The reputation of some products keeps with them faar too long.
Since the early 80s, the only holder of the supply contract under MIL-S-25948 is Randolph.
The teardrop for factor was outgoing in the 60s.

[nardev]

Well, to me this all looks more than obvious now that it's an artificially generated crisis. Until now, everything should have been stabilized IF they wanted.

btw. here is the strategy of EU, pretty fresh document https://www.bruegel.org/wp-content/uploads/2021/07/PC-2021-17-semiconductors-.pdf

[ataradov]

Well, to me this all looks more than obvious now that it's an artificially generated crisis. Until now, everything should have been stabilized IF they wanted.

Who are "they"? Semiconductor companies? They don't want to "fix" it, they are working as normal based on what was ordered. All new orders went to the end of the queue.

You need to understand that 52 week factory lead times were normal even before the crisis. You just were always observing the other end of that pipeline, because distributors managed their orders well, and there was no interruptions. But once you interrupt it by cancelling orders, you are in for a long wait.

There is nothing artificial about it.