What the Wuxi Disruption Means for Semiconductor Supply Chains
The semiconductor industry is used to change; the cyclical market ebbs and flows, while a few events, like Lunar New Year, bring a predicable annual deceleration to companies’ supply chains.
However, the events that are the most disruptive are the ones that are unexpected, such as the recent unfortunate occurrence in Wuxi, China.
On January 6, 2023, a fire broke out at a semiconductor production site in Wuxi. Fortunately, no casualties were reported.
The site of the fire was the Wuxi Welnew factory: a manufacturing partner for Infineon, Vishay and OSRAM. The factory focused mainly on medium- to high-voltage MOSFETs and LED drivers, which are used in a host of automotive and industrial applications.
According to a source at one of the manufacturers, plating lines have been “severely damaged.” Plating is the final process of IC fabrication, in which the electrical circuit within the chip is completed. Due to its intense complexity, it is often outsourced to subcontracting factories, such as Wuxi Welnew.
What Is the Impact of the Welnew Shutdown on Customers?
Vishay is planning to restart production at a new site in Shanghai. The entire migration process is estimated to take at least five months. The manufacturer plans to eventually use their site, 650 miles north in Tianjin, as an alternative plating location in hopes of easing some of the aftereffects. However, the consequences of the fire are already being felt, as some orders that were expected to be delivered by the end of January have already been pushed out until 2024.
Infineon stated that it has rolled out “short- and mid-term mitigation plans,” and is considering a migration process similar to Vishay’s.
While the magnitude of the fire is yet to be discovered, we know that the site housed two production lines for Vishay, affecting 931 MPNs. Infineon had 18 product lines in the Welnew factory, although the total number of affected MPNs is not yet known.
If the impact to Vishay’s product lines is any indication of Infineon’s eventual disruption, companies dependent on Infineon parts that flow through the Wuxi Welnew factory may feel the effects the worst. The potential number of affected parts is alarmingly high, and an endeavor to mobilize 18 production sites would likely take far longer than five months.
Customers of the affected manufacturers might also see the impact of the fire spread to parts produced outside of the Wuxi factory.
Introducing additional production lines to an alternative factory without increasing capacity can congest the normal flow of output at the new site. For example, we know that Vishay’s factory in Tianjin will have to accommodate the two production lines from the Wuxi site. When this happens, parts that were being plated at the Tianjin site will then have to contend with the additional 931 MPNs from the Wuxi site, constraining capacity and constricting overall turnaround.
Manufacturers also tend to prioritize high-margin parts, such as medium- to high-voltage MOSFETs, during a shortage. Coupled with the capacity constraints, this could lead to an unexpected lengthening of lead times to parts that are native to factories outside of Wuxi Welnew.
Do Semiconductor Factory Disruptions Like This Occur Often?
Semiconductor supply chain disruptions in the form of factory fires are not uncommon. In September of 2013, just three miles down the road from the Welnew site, an SK Hynix factory caught fire. This accident took the manufacturer four months to fully recover.
More recently, in October of 2020, a fire at an Asahi Kasei Microdevices (AKM) factory in Japan raged for over three days, rendering the site offline indefinitely. Then five months later, in March 2021, a Renesas site was down for three months as a result of a fire.
How to Protect Your Supply Chain Against the Unpredictable
The truth is that semiconductor manufacturing is not a risk-free operation, and downstream supply chain partners share in that risk. Although surprises can pop up at any moment, there are ways to protect your supply.
Keeping buffer stock on parts that are the most critical to flagship or high-grossing products is a good way to hedge against worst-case scenarios. Of course, an event such as a factory fire can happen across any semiconductor’s supply chain, but shoring up your most important components can protect your main streams of revenue.
A more active way to protect against disruptions is by developing contingency plans. As illustrated by Vishay and Infineon, mitigation plans allow you to respond immediately. With a knowledge of cross-compatible parts and alternative suppliers, you can create a contingency plan for any part in your supply chain.
Fusion Is Here to Help
Supply chain management is a perpetual act of being prepared for the worst but hoping for the best. Events like these are a reminder of the importance of staying well positioned for the unforeseeable.
Fusion Worldwide serves as the critical link in your supply chain. With world-class quality assurance, inventory management and a vetted network of global distributors, we can help you keep your business running smoothly, no matter what the future brings.
For more information about the Wuxi fire or concerns about shortages, contact us.