CBA Newsletter May 2021

PS5isalwaysoutofstockinmonths,whilenewlyproducedcarshavefewerfunctionsandoldreplacementparts. Theabnormalphenomenonin2021isnotacoincidence,infactalmostallfactoriesarewaitingforamissingpiece outoftensofthousandsofreadyparts–siliconsemiconductors.Whatishappeningthroughoutthesupplychain from ordering,productiontodelivery?TheCurrentBusinessAffairsNewsletter(MayIssue)ofTheBusiness Students'Union,HKUSTSUistakingyouthroughtheworldwidedisaster. Causeandconsequencesofsurgeindemand Dilemmaoverriskingforprofit Forcertain,mostpeoplewillblameeverythingon Toavoidshortageofstock,firmscanchoosetoorder covidthisyear,whichisanobviousanswertothe materialsandpartsearlierandstorethem formonths. shortage.Thereason,however,ismorethanatrend Itcan ensuresmooth operation forawhileeven butastructuralflawintheglobalsupplychain.Once encounteringcriseslikecovid,butitisobviouslynot thepandemicstrikesacrossthemap,consumersshift thestrategyofmostcompaniesasweseetheglobal theirspendingfrom allkindsofleisureto online shortagenowadays,sincetheyalsoconsideranother shopping,which heavily relies on logistics.The factor–inventoryholdingcost.Rentalexpensesfor weaknessesofcurrentsupplychainmanagementare unnecessarystorageofmaterialsbringnobenefitat immediately exposed upon the challenge of all,hencemostfirmspursuejust-in-timeproduction, skyrocketingdemand. inwhichpartsaremanagedtoarriveandbeready rightafterpreviousproductionstepsarefinished.This Whatmightsurpriseyouisthat,thestocksthemselves minimisestheholdingcostbutitrequiresalotofskills arenearlynotfallingshort,insteadtheproblem is topredictandmanagesupply.Whilethefirmswere insufficientcomplements,such aslimited spacein walkingonthewiresandmaximisedtheirprofits,they ports.Also,pandemiccreatesimports,butitdoesnot didnotseetheriskscoming. encourage exports, leading to stacks of empty containers waiting to be shipped back to the Just-in-timeproductionfailseasilywhenoneofmany productioncountries.Notonlydoestheproblem exist partsismissing.Somematerialslikeresinareableto attheports,whiletheshortageextendstolocaltruck respondquicklytosuddenincreasesofdemand,but driversand even further.Noticethatthesesupply somedonot,suchassemiconductorchips.Giventhat chain insufficiencies take years to increase the basicallyallelectronicscontainsemiconductors,more capacity,meaningthatoursupplysystem hasbeen thanhundredsofindustriesareforcedtoshutdown pronetosuddenchangesindemand.Thequestionis: factories,spreading the shortage among different howdidfirmsoperateunderthisuncertainty? products. Sources:WendoverProductions.“WhyThereareNowSoManyShortages(It'sNotCOVID)”.Youtube,2Jun2021,www.youtube.com/watch?v=b1JlYZQG3lI PolyMatter.“WhytheWorldisRunningOutofComputers”.Youtube,28May2021,www.youtube.com/watch?v=IOvqN23Sr4o

Near-monopolyinsemiconductorindustry Firmsthatwantelectronicproductsorderabitmore, while electronic producers order a bit more Theinflexiblenatureofsemiconductorproductionisdue semiconductors–leadingtoextrapolationofdemand totheconsolidatedstructureoftheindustry.Apartfrom andprojectedtothemarket.Usuallythepredictionis theconstructioncostofsiliconchipfactories,thefactthat helpfulandmanageable,whereasitdoesnotreflect semiconductorsmaybereplacedbyadvancedtechnology truedemandwhenfacinghugefloodoforders. inafewyearskeepsnewentrantsawayfrom theindustry. Underfiercecompetition,survived firmsspend their Thesolutionissimplebuthard:giveconfidencetoall profitsondevelopingnew factories,drivingoutweaker semiconductordemandingcompanies.Whentheyare competitors.Asaresult,anear-monopolyiscreated, assuredthattheywillgetenoughpartsfortheirown dominated by Taiwan Semiconductor Manufacturing production,theywilldecreasetheinflatingmarginsin (TSMC).It is inevitable that the globalsupply is orders,significantlyreducingthemultipliereffect. vulnerablewithmostfactoriesconcentratedinTaiwan, Giventhatsemiconductorfactorieshavealreadybeen whichexplainstheseverestrikeinsupplycomparedwith producingatfullspeed,itcomestogovernmental othermaterialsunderpandemic. decisionstosolvetheworldwidesupplycrisis. Predictionsandnon-existentdemand YourFeedback…… Considernecessitiesthatareboughtweeklyormonthly, YourfeedbackwillhelpalottoimproveourCBA suchastoiletpapersandrice.Whentherearenewssaying Newsletter,ifyouhaveanyenquiriesorsuggestions, thatthereareshortagesofthesenecessities,peoplewill please do nothesitate to contactThe Executive predictunrealisticallyand buymorethan theyneed, Committee of the Union through email by namelypanicbuying,furtherpushingthedemand.The [email protected],orby mailto Mailbox #15,LG5 same explainswhy the semiconductorsare in huge StudentAmenities,TheHongKongUniversityof shortageeven though factoriesin Taiwan havebeen ScienceandTechnology,ClearWaterBay,Kowloon, operatingdayandnight,butstillthedemandingisrising.HK.