presentation for the pharmaceutical industry. It promised savings of up to 50 percent on warehousing if clients embraced its “lean and mean” approach to supply chains.

Such claims have panned out. Still, one of the authors of that presentation, Knut Alicke, a McKinsey partner based in Germany, now says the corporate world exceeded prudence.

“We went way too far,” Mr. Alicke said in an interview. “The way that inventory is evaluated will change after the crisis.”

Many companies acted as if manufacturing and shipping were devoid of mishaps, Mr. Alicke added, while failing to account for trouble in their business plans.

“There’s no kind of disruption risk term in there,” he said.

Experts say that omission represents a logical response from management to the incentives at play. Investors reward companies that produce growth in their return on assets. Limiting goods in warehouses improves that ratio.

study. These savings helped finance another shareholder-enriching trend — the growth of share buybacks.

In the decade leading up to the pandemic, American companies spent more than $6 trillion to buy their own shares, roughly tripling their purchases, according to a study by the Bank for International Settlements. Companies in Japan, Britain, France, Canada and China increased their buybacks fourfold, though their purchases were a fraction of their American counterparts.

Repurchasing stock reduces the number of shares in circulation, lifting their value. But the benefits for investors and executives, whose pay packages include hefty allocations of stock, have come at the expense of whatever the company might have otherwise done with its money — investing to expand capacity, or stockpiling parts.

These costs became conspicuous during the first wave of the pandemic, when major economies including the United States discovered that they lacked capacity to quickly make ventilators.

“When you need a ventilator, you need a ventilator,” Mr. Sodhi said. “You can’t say, ‘Well, my stock price is high.’”

When the pandemic began, car manufacturers slashed orders for chips on the expectation that demand for cars would plunge. By the time they realized that demand was reviving, it was too late: Ramping up production of computer chips requires months.

stock analysts on April 28. The company said the shortages would probably derail half of its production through June.

The automaker least affected by the shortage is Toyota. From the inception of Just In Time, Toyota relied on suppliers clustered close to its base in Japan, making the company less susceptible to events far away.

In Conshohocken, Pa., Mr. Romano is literally waiting for his ship to come in.

He is vice president of sales at Van Horn, Metz & Company, which buys chemicals from suppliers around the world and sells them to factories that make paint, ink and other industrial products.

In normal times, the company is behind in filling perhaps 1 percent of its customers’ orders. On a recent morning, it could not complete a tenth of its orders because it was waiting for supplies to arrive.

The company could not secure enough of a specialized resin that it sells to manufacturers that make construction materials. The American supplier of the resin was itself lacking one element that it purchases from a petrochemical plant in China.

One of Mr. Romano’s regular customers, a paint manufacturer, was holding off on ordering chemicals because it could not locate enough of the metal cans it uses to ship its finished product.

“It all cascades,” Mr. Romano said. “It’s just a mess.”

No pandemic was required to reveal the risks of overreliance on Just In Time combined with global supply chains. Experts have warned about the consequences for decades.

In 1999, an earthquake shook Taiwan, shutting down computer chip manufacturing. The earthquake and tsunami that shattered Japan in 2011 shut down factories and impeded shipping, generating shortages of auto parts and computer chips. Floods in Thailand the same year decimated production of computer hard drives.

Each disaster prompted talk that companies needed to bolster their inventories and diversify their suppliers.

Each time, multinational companies carried on.

The same consultants who promoted the virtues of lean inventories now evangelize about supply chain resilience — the buzzword of the moment.

Simply expanding warehouses may not provide the fix, said Richard Lebovitz, president of LeanDNA, a supply chain consultant based in Austin, Texas. Product lines are increasingly customized.

“The ability to predict what inventory you should keep is harder and harder,” he said.

Ultimately, business is likely to further its embrace of lean for the simple reason that it has yielded profits.

“The real question is, ‘Are we going to stop chasing low cost as the sole criteria for business judgment?’” said Mr. Shih, from Harvard Business School. “I’m skeptical of that. Consumers won’t pay for resilience when they are not in crisis.”

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

‘It’s a Roller-Coaster Ride’: Global Chip Shortage Is Making Industries Sweat

Dan Rozycki, the president of a small engineering firm, worries about what a global semiconductor shortage could mean for curing concrete.

Mr. Rozycki’s company, Transtec Group in Austin, Texas, sells small sensors that are placed where concrete is poured at building, highway and bridge construction sites. The gadgets take temperature readings and wirelessly send data so workers with computers can ensure the material is hardening properly.

Like many other things in the modern world, from computers and cars to cash registers and kitchen appliances, the sensors require a couple of common, inexpensive semiconductors that have suddenly become a very scarce commodity.

“Every month our product is getting more popular,” Mr. Rozycki said. “But we may not be able to make it in several months.”

Shortages of semiconductors, fueled by pandemic interruptions and production issues at multibillion-dollar chip factories, have sent shock waves through the economy. Questions about chips are reverberating among both businesses and policymakers trying to navigate the world’s dependence on the small components.

Chip supply limitations are far from a new phenomenon. But past problems have typically concerned particular kinds of chips, like the types that help store computer memory or process vast amounts of data. This time, customers are also scrambling to find an array of simpler chips made in older factories. And those factories are difficult to upgrade.

ordered a 100-day review of the semiconductor supply chain, a process that drew chief executives of 19 big companies to a virtual meeting Monday. Congress has backed legislation aimed at spurring more domestic chip manufacturing to reduce dependence on Taiwan and South Korea, which Mr. Biden has proposed funding with $50 billion in his infrastructure plan.

Most attention has focused on temporary closings of big U.S. car plants. But the problem is affecting many other sectors, particularly the server systems and PCs used to deliver and consume internet services that became crucial during the pandemic.

Pat Gelsinger, the new chief executive of the chip maker Intel, who attended the meeting with the president on Monday. “People are begging us for more.”

The chip shortage potentially affects just about any company adding communications or computing features to products. Many examples were described in 90 comments filed to the Biden supply chain review by companies and trade groups, including a laundry list of needs from industry giants like Amazon and Boeing.

The personal computer giant HP said the shortage of semiconductors had prevented the company from being able to meet demand for computers ordered by schools. Rising chip prices also have made it harder to offer affordable hardware for less-wealthy school districts during the pandemic, the company said.

Mr. Rozycki’s engineering firm in Austin is for now among the lucky chip users. It planned ahead and has enough chips to keep making the roughly 50,000 sensors it supplies each year to construction sites. But his distributor has warned him it might not be able to deliver more of them until late 2022, he said.

“Is that going to halt those projects?” Mr. Rozycki asked. He is scouring the market for other distributors that might have the two needed chips in stock. Other possibilities include redesigning the sensors to use different chips.

drought in Taiwan and a cold snap in Texas that temporarily shut down factories operated by Samsung Electronics, NXP Semiconductors and Infineon.

“It’s hell on earth right now,” said Frank McKay, chief procurement officer at Jabil, which buys billions of dollars’ worth of chips each year to assemble products for customers that include Apple, Amazon, Cisco Systems and Tesla.

On any given day, he said, his company is facing shortages of 100 or so components and has to use all its negotiating power to get them — successfully so far. “But it’s a roller-coaster ride every day,” Mr. McKay said.

Fixing other issues is likely to stretch into 2022. Mr. Gelsinger said Intel was talking to auto industry suppliers about shifting some production of their chips to older Intel factories, possibly starting in six to nine months. But adding new production tools to an existing chip plant can take a year. Building a new one takes three years.

“This is going to be a long healing,” said Thomas Caulfield, chief executive of GlobalFoundries, a big U.S. chip manufacturer that is doubling capital spending this year so it can meet demand.

For now, chip delivery schedules have stretched from around 12 weeks to more than a year in some cases, chip buyers and brokers said. That is bad news for companies like the webcam start-up Wyze Labs.

“We’re going to be straight up with you about some bad news we got this week,” the company wrote in a note to customers in January. “Some of our key suppliers informed us they would only be able to supply about one-third of the chips we need to make Wyze Cams.”

The company, which is based in Kirkland, Wash., predicted problems stocking the third version of its flagship webcam. The company website says it is sold out, with more inventory expected in one to two weeks. Wyze did not respond to requests for additional comment.

Supply problems can be a touchy topic, said Zach Supalla, chief executive of Particle, a San Francisco company that buys chips to make communication and computing equipment. It sells its devices to thousands of companies that make products like hot tubs, air-conditioners and industrial and medical equipment.

Particle has so far has secured enough chips to keep making its products, he said. But the company is asking customers to order further and further in advance to ensure it can meet demand, Mr. Supalla said.

When chips can be found, price markups can be stark. One particularly unglamorous widget, a type of ceramic capacitor that ordinarily sells for around 3 cents each, became hard to find when a Covid-19 outbreak temporarily closed a factory in China.

The capacitor shortage hurt production of a popular cellular modem. That modem, which normally sells for $10 to $20, spiraled to $200 on the spot market, Mr. Supalla said. Customers like car companies may be willing to pay such sums to keep producing $40,000 cars, Mr. Supalla said. But not all can.

Some buyers suspect profiteering. Jens Gamperl, chief executive of an online components exchange called Sourcengine, recounted a call from an executive who fumed that a chip normally priced at $1 each was listed for sale by the exchange at $32. Mr. Gamperl had to explain that his own company had been forced to pay $28 for the component.

“That is the kind of craziness that we see left and right now,” he said.

Besides the direct effect on hardware makers, chip shortages can reduce shipments and raise the cost of servers and networking equipment to offer services like streaming entertainment, remote learning and medicine. They can also affect software makers.

Tripp, a Los Angeles start-up that makes a kind of meditation app that exploits virtual-reality headsets from Sony and others, was banking on the new PlayStation 5 to lift software demand, said Nanea Reeves, Tripp’s chief executive. But chip shortages helped to hobble that console launch.

“We were expecting a bigger bump from the PS5,” she said. The company is hoping more consoles arrive in the second quarter.

View Source

Amid a chip shortage, the White House gathers business leaders to discuss supplies.

The White House convened a meeting of business executives on Monday to discuss semiconductor supply chains amid a global chip shortage, with President Biden using the moment to pitch his $2.3 trillion infrastructure plan, which aims in part to bolster high-tech domestic manufacturing.

“China and the rest of the world is not waiting, and there’s no reason why Americans should wait,” Mr. Biden said.

At one point, he held up a silicon wafer and declared, “This is infrastructure.”

Participants in the meeting, described by the White House as a “virtual C.E.O. summit on semiconductor and supply chain resilience,” included executives from AT&T, Ford Motor, General Motors, Google, Intel, Samsung and Taiwan Semiconductor Manufacturing Company. The meeting was closed to the news media, aside from a brief portion when Mr. Biden gave remarks.

The global semiconductor shortage has disrupted auto production in the United States and elsewhere, underscoring both a short-term and long-term challenge for the Biden administration with economic and national security implications.

signed an executive order directing his administration to conduct a 100-day review of supply chains for semiconductors and several other types of critical goods.

His infrastructure plan also seeks to strengthen supply chains for chips and other important products.

It includes $50 billion for semiconductor research and manufacturing, and another $50 billion to create an office at the Commerce Department focused on the country’s industrial capacity and support for the production of critical products. It also includes $50 billion for the National Science Foundation, where Mr. Biden would create a technology directorate focused on areas like semiconductors.

View Source

Intel plans to spend $20 billion on two new chip factories in Arizona.

Intel’s new chief executive is doubling down on chip manufacturing in the United States and Europe, a surprise bet that could please government officials worried about component shortages and dependence on factories in Asia.

Patrick Gelsinger, who took the top job in February, said on Tuesday that he planned to spend $20 billion on two new factories near existing facilities in Arizona. He also vowed that Intel would become a major manufacturer of chips for other companies, in addition to producing the processors that it has long designed and sold.

Intel had stumbled in developing new production processes that improve chip performance by packing more tiny transistors on each piece of silicon. The lead in that costly miniaturization race had shifted to Taiwan Semiconductor Manufacturing Company, or TSMC, and Samsung Electronics, whose so-called foundry services make chips for companies that include Apple, Amazon, Nvidia and Advanced Micro Devices.

Some investors and analysts had pushed for Intel to spin off or discontinue manufacturing in favor of external foundries, an approach taken by most other chip companies to increase profits.

a pandemic-fueled shortage of semiconductors for cars, appliances and other products has underscored the vital role of chip factories in supporting many sectors of the economy. And before the recent concerns, worries about the Asian foundries’ proximity to China had already prompted Congress and several branches of the Trump and Biden administrations to back plans to encourage more domestic chip manufacturing, though funding had not yet been appropriated.

Officials in Europe have also floated proposals for new factories to reduce reliance on foreign-made chips.

The Intel strategy recognizes “that the world no longer wants to be dependent on the ring of fire that is right there next to China,” said G. Dan Hutcheson, an industry analyst at VLSI Research. “It’s very forward-looking.”

TSMC previously announced plans for a new factory in Arizona, a project that it valued at $12 billion and that is expected to receive federal subsidies. Samsung is seeking government incentives for a $17 billion expansion of its facilities in Austin, Texas.

Mr. Gelsinger, who first joined Intel at 18, left in 2009 after 30 years. He served eight years as chief executive of the software maker VMware before Intel’s board persuaded him to replace Robert Swan, who was ousted in January.

Intel said its new global foundry service would operate from the United States and Europe, with further factory additions expected to be announced in the next year. It already runs plants in Ireland and Israel.

“The industry needs more geographically balanced manufacturing capacity,” Mr. Gelsinger said.

While it is committing $20 billion up front, Intel hopes to negotiate with the Biden administration and other governments to get incentives for its manufacturing expansion, said Donald Parker, an Intel vice president.

Though it makes most products in house, Intel has long used external foundries for some less advanced chips. Mr. Gelsinger said the company would expand that strategy to include some flagship microprocessors, the calculating engines used in most computers. That will include some chips for PCs and data centers in 2023, he said, and give Intel more flexibility in meeting customer needs.

But manufacturing will remain the core of Intel’s strategy, Mr. Gelsinger said, despite its recent technical problems.

He said significant improvements were being made in its next production process, which was delayed last summer. Intel also will engage with IBM in a new partnership to develop new chip-making technology, he added.

Mr. Gelsinger’s plans are bound to meet skepticism. Besides recent problems with manufacturing technology, Intel has tried in the past to operate as a foundry for other companies with little success.

But Intel has modified those plans in several ways. For one thing, it will for the first time be willing to license its technical crown jewels — the so-called x86 designs used in most of the world’s computers — so customers can incorporate that computing capability in chips they design for Intel to make, the company said.

View Source