The appetite for automation and Internet-of-Things (IoT) has likely never been higher. As the pandemic tightened labor markets and constrained business operations, companies have a lot of reasons to introduce IoT and automation into their operations. Unfortunately, just as many technology, product, and innovation leaders are gearing up to launch new projects, they’re feeling hunger pains arising from the current massive semiconductor shortage.
For project teams lucky enough to find stock of chips when it comes time to build, some are hit with extortion. Examples include component and shipping service prices, compromising financial models, and ROI calculations on the previously estimated costs of materials (BOM).
The IoT chip shortage is here to stay. But it can be de-risked with careful planning and execution to avoid pitfalls.
Jon Hallsten
Failure to properly manage the current crisis creates delays and added costs to already lengthy and expensive projects. The current drama will lead to frustrated project teams and customers who will face costly re-design or even the loss of critical projects.
But there are some ways to manage and reduce the impact of the shortage on your project.
How Did We Get Here?
Before we delve into some tips, let’s see how things got this bad. In short, the current chip shortage is a perfect storm of disruption in natural resources, labor shortages, business operations requirements, and increased demand from the pandemic. Not to mention, increasing capacity via new chip manufacturing plants isn’t exactly something that can be erected in a few days, weeks, or even months. Let’s detail some of these drivers.
Hurricanes, droughts, fires, and the intrusion of socio-economic, political forces can compromise the outlook for a crop report. But did you know that the same parties have shaped the history of semiconductor (chip) shortages? Clean water is a critical raw material used in chip foundries. Taiwan, a leading country in chip manufacturing, just experienced its worst drought in 50 years. Compounding the situation for Taiwan, they’ve had to shoulder increased demand due to the US trade war with China.
Additionally, a Japanese foundry caught fire earlier this year and was out of service for several months. A review of recent history reveals a similar pattern, including a 2011 earthquake that knocked out the Japanese production of NAND chips. Other natural and man-made phenomena surrounding the production of chips has plagued the industry for years.
In terms of standing up chip manufacturing capacity, historical precedent remains the same: it remains very costly to open new foundries with investors leery due to uncertain future demand and subsequent pricing. The industry appears to require price guarantees, much like farming subsidies that are often politically motivated, to safeguard investments in new foundries.
Demand vs. supply woes are driving record price inflation in the short-term (a 12-18 month duration is forecasted), but who knows what the long-term outlook looks like.
Tips to Ship IoT Projects in a Chip Shortage
As history is our best teacher, the story of chip shortages is a familiar one in many cases. However, the knowledge to navigate a chip shortage amidst an IoT project is unfamiliar to most.
Hallsten innovations can help you maintain and deliver a full plate of IoT projects by using its demonstratable best practices during these trying times. Our process is aimed to help ensure that the many risks IoT projects face are mitigated as much as possible – chip shortages included.
Here are some DOs and DON’Ts to help your project reach the finish line despite the chip shortage. As you will learn, and to quote Hallsten Innovations’ hardware guru Jim Beckford,
Everything starts at the design level.
DO: Design For Component Flexibility
- Check for A or B-grade components of a particular part as either may suit the specification.
- Consign parts to contract manufacturing at the time of purchase.
- Ignore “put-up” part numbers with unnecessary packaging limitations (i.e., 2,000 piece reel) for the BOM and allow the contract manufacturer to use at its discretion.
DO: Understand a Part’s Range of Acceptance
- Move from a mindset of “spec for spec” identical to a mindset of “part spec requirement sufficiency” when checking specs against a vendor datasheet.
- Be reasonable with connector plating and finishes. Determine minimums and better criteria to allow options
DON’T: Wait to Purchase Core Components
- Commit early by purchasing critical components at the “design level,” especially a processor or ADC, as opposed to waiting until the schematic level. (Do this for at least the prototype run)
DON’T: Put All of Your Eggs in One Supplier Basket
- Check component stock at several vendors and limit single sources. Do this at both the design level and the schematic entry-level.
- Record backup vendor info in the CAD software and use vendors with liberal return policies.
- Watch out for vendors claiming on-hand stock. Many will argue on-hand inventory when reviewing a website but once a PO is written, indicate several weeks of a backlog on the item.
Once you’re in the layout and manufacturing phases, here are some additional tips:
DO: Build for Layout Modularity and Anticipate Changes
- Layout the board with multiple footprints if possible. Plan for a layout change.
DO: Prepare For the Hunt
- Once the manufacturing process begins, be ready to find replacement parts by being keenly aware of the critical specs for the circuit. (This knowledge may be tribal or buried in a notebook tucked away.) Document the reasons for the specification.
- It is possible to create individual specifications part by part. Individual specs allow for quick vendor-to-vendor comparisons should substitutions be required down the road.
We Can Help
Feast or famine, there is no shortage of talent at Hallsten Innovations. A farmer’s almanac cannot predict the success of an IoT project. Still, proper planning and execution will nourish a project that can be invaluable at growing and improving business operations. It is an endeavor that requires the right partner to harvest the right solution for an exceptional yield. Our team develops technological solutions and brings years of wisdom from lessons learned to help you position your business to sow success. 
Bring Us Your Napkins!™
Is your team thinking about solving a business challenge with an IoT solution, but you are not sure where to start?
A wonderful place to start is with what we call a Napkin. This is a rough sketch of your idea, concept, or vision. Hallsten Innovations would be happy to review your napkin idea and provide feedback.
Please send them our way or reach out for an introductory call by emailing napkins@hallsteninnovations.com
References for further investigation
- https://en.wikipedia.org/wiki/Chip_shortage
- https://fortune.com/2021/11/10/chipmakers-infineon-foundries-chips-semiconductors-auto-price-hike-inflation/
- https://www.wired.com/story/why-chip-shortage-drags-on/
- https://www.cnbc.com/2021/11/14/supply-chain-chaos-chip-shortage-could-go-through-2023-paul-meeks-.html
- https://www.theverge.com/22777216/global-chip-supply-chain-shortage-holidays-christmas-shopping
- https://www.economist.com/finance-and-economics/2021/05/20/the-global-chip-shortage-is-here-for-some-time