CHIP CRISIS: RFID Identifiers vs. Goliath

In 2020, the Covid-19 global health crisis sank its clutches in all economic sectors, and as if it had not been challenging enough for the industry, the global chip crisis that came in 2021, seriously committing the production of any chip-based device. How has it affected the production of RFID identifiers? How can all companies alleviate the effects of the crisis, precisely, thanks to these identifiers?

RFID identifiers are among these chip-based products. Its most basic form, dry-inlay, is the union of an antenna with a chip on a substrate. From there to its most complex forms, the chip is an indispensable and irreplaceable part. How does an RFID manufacturer get around the chip crisis and get stronger?

In this article, we will answer these three questions. But we’ll get started by explaining the chip crisis.

The five causes of the global chip crisis

It has been the perfect storm, on the one hand, a global health crisis, on the other hand, a series of unfortunate climate and human disasters, and finally geopolitical tensions. But not all of these causes have the same impact or extend their consequences in the same span of time.

1. Confinement

The confinement derived from the Covid-19 pandemic triggered the consumption of electronic devices such as tablets, game consoles, laptops, smartphones, e-books, kitchen robots, etc. This increase in demand was so sudden that it created a bottleneck in chip supply.

Production increases and factory adaptations to meet new demand are time-taking changes. Up to a year can take a new factory to reach its optimum production speed.

2. Fire in Japan

Added to this mismatch between demand and production capacity was added to the fire of a factory of Japanese chip producer Renesas.

Asia is the world’s leading chip producers, with China being the largest with 24% of the world’s production, closely followed by Taiwan with 21%, South Korea with 19%, and finally Japan with 13%.

3. Climate change

3.1 Cold Wave in Texas

The intense cold wave of the state of Texas this past February caused supply cuts, forcing the world’s largest chip producer, Samsung Electronics, to close its chip plant for a month.

These three previous causes were circumstantial and, currently, one could say that closed. The following three causes prevail, fortunately with solutions in place. However, they are complex solutions.

3.2 Drought in Taiwan

Taiwan is facing its worst drought in the past 56 years. With some of its reservoirs completely dry and the main ones below 50% of their capacity, water has been limited to human consumption; and the industry is seriously deprived. As we have already mentioned, Taiwan is the second largest chip-producing country in the world after China. Water supply shortages severely limit chip production.

4. Material shortage

Most chips use a resin as an insulating substrate of their circuits. This resin is the Ajinimoto Build-up Film (ABF) of the Ajinomoto Fine-Techno Co. This material is best suited for nano-circuits for its long durability, and its resistance to the expansion and contraction of temperature changes.

Ajinomoto is the only producer in the world of this material that today is scarce. AMD and Intel are investigating to develop other substrates to replace it. But as long as they don’t have one, chip manufacturing will continue to suffer from ABF shortages.

5. Geopolitical tensions

There are three types of chip producers:

—those who design, but do not manufacture (such as AMD, Qualcomm or Mediatek);

—those who design and manufacture their chips (such as Samsung and Intel);

—and those who manufacture each other’s designs (such as United Microelectronics, TSMC, and Global Foundries).

As we see, few have the capacity to manufacture chips, and the most important ones are in Asia (China, Taiwan and South Korea).

Taiwanese TSMC planned its expansion of factories thinking to build it in China or Europe. However, the US is finally chosen to design its new chip manufacturing plant, which will start operating in 2024.

The issue of labour and tax policies, in addition to government subsidies to industry, are key pieces when talking about greater Asian productive competitiveness. Despite this, this time, the Taiwanese giant has preferred to align itself with the US and not with China or Europe for its expansion.

Chip crisis until mid-2022

As we have already mentioned, the production adaptations, the start-up of new factories, and the development of a new substrate are long processes.

On the other hand, it seems that we only can wait and cross our fingers to rain in Taiwan, or there are no more fortuitous incidents affecting the chip supply chain…

In addition, smelters are raising the price of wafers where chips are stored, chip manufacturers also raise prices, and after that, other suppliers.

How it impacts companies

According to Gonzalo Fornos, Head of Smart Procurement at LKS Next, one of the issues with the greatest impact on global supply chains today is the limitation of access to chip supplies for their electronic components and equipment. In good line, 9% of Spanish imports come from the “world’s factory, China”, and one of the most relevant categories, above 40%, are electronic components, according to Euromonitor. This fact is affecting the regular productive activity of many companies who are being forced to take actions that increase the resilience of the supply chain and the response capacity.

Thus, it is increasingly common to see initiatives to increase the visibility of the supply chain, develop relationships with strategic suppliers, search for closer alternative suppliers, such as TRACE-ID, or initiatives in the field of R&D&I to develop products that contain components with less dependency.

Additionally, it is essential to improve reaction time, improving the agility of purchasing processes through technology and relocate production sites, storage and even stocks within the supply network.

What to do to mitigate risk and harm

Trace-ID, as a manufacturer of RFID identifiers, we have followed three key steps to ensure the delivery of RFID tags to our customers:

1. Anticipating the program

This has meant a pre-investment in chips and other materials to ensure supply to customers and meet our commitments. In addition, to being able to absorb new demands from new customers.

2. Diversify product

Our R&D&I department has allowed us rapid responsiveness to achieve the design of the new products since each RFID tag is designed for a particular chip series. In this way, expanding the catalogue, we allow versatility between antennas and chips increasing our supply capacity.

3. Real-time tracking

The result is daily updated information, making the entire supply chain visible so that you can decide, react and act appropriately.

RFID identifiers as a centre for the industrial ecosystem

Since the beginning of the year, Trace-ID has been implementing a new strategy that puts RFID identifiers at the centre.

Thanks to these small devices, companies take full control of their production and management processes.

Trace-ID connects its customers to the industrial network of RFID, from engineering companies to suppliers and converters. The former design the RFID system that solves the customer’s needs; the second and third shape your solution and complete it, and finally, Trace-ID RFID identifiers are at the very inner centre of each of those solutions, whether smart tags or other forms.

Trace-ID is the connector between natural partners and the manufacturer of the essential centre of the product.

How can companies alleviate the effects of the crisis with RFID identifiers?

One of the key factors for a company to be responsive is the real-time visibility of the supply chain, inventory, and production processes. An RFID system provides this real-time visibility in the cloud, always up-to-date and accessible from anywhere.

In our article Companies with RFID logistics are more competitive we explain it extensively.