The semiconductor chip shortage that hit the automotive industry in late 2020 highlighted two lessons in supply chain management.
The first is the lack of upstream visibility remains the Achilles heel of supply chains. Firms often do not know their suppliers beyond those in Tier 1 and are thus prone to shocks in the upstream supply chain.
The second is the supply chain of each firm is not isolated but is connected with other supply chains in a vast global network. This reality was made painfully apparent by the continuing shortages of semiconductors, when companies in different industries (e.g., automotive and consumer electronics) found themselves vying for chips from the same suppliers.
The solution to these problems requires not only gaining visibility into the upper tiers of a firm’s supply chain but also assessing which suppliers are prone to greater risk from the rest of global network.
Our study of this problem used a large public dataset of supply linkages in the economy compiled by Factset Revere. It enabled us to map more than 690,000 supply chain links across 47,390 firms in the global economy from 2003 to 2017. Although the dataset is at the firm level and does not capture specific product-level linkages, our study revealed lessons. In this article, we illustrate our key insights with an example of the supply chains from five major chip manufacturers to seven major automobile manufacturers. (The seven include the combined Fiat and Chrysler, which merged in 2014.)
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