The Single Point of Failure in Supply Chain – Semiconductor Fabrication!

Semiconductor Fabrication

I am a proponent of dual sourcing. Some people believe in outsourcing or insourcing, offshoring or onshoring. I believe in all of the above. The vulnerabilities with sole sourcing are very real. And you need look no further than the pandemic and semiconductor fabrication.

The global pandemic resulted in unexpected shortages of goods and disruptions in delivery which continue to this day. And in the extreme many businesses failed, investments were lost, or suffered irreparable harm as a result.

A major reason for the extensive damage caused by the breakdown of Supply Chains during the pandemic was because of broad based single points of failure. This is why we need to address this problem as it pertains to semiconductor fabrication.

The False Confidence in Historic Supply Chain Design

Just-in-time Supply Chains have long been the envy of companies and industries of all kinds. The concept of only bringing in inventory on demand is very compelling when inventories are considered costly, wasteful and cash drains.

But the Coronavirus pandemic did not respect geographic borders, political or religious beliefs, or the ways in which companies operated and how people lived their lives.

Car dealership lots had very limited supplies of automobiles during the pandemic. How could this be? The automotive industry is renowned for having the envious Just-in-time business model at work. Historically you could buy a customized vehicle and count the time until it would be delivered precisely as you ordered it. But not anymore.

I was actually in the market to buy a new vehicle during the pandemic and when I went to various dealerships, all with empty lots, and the response was always the same. Car manufacturers were experiencing a shortage of the computer chips which are now an extensive part of the makeup of any vehicle. The vaunted Just-in-time operating model had broken.

Deloitte states that the automotive industry lost sales of $210 billion in 2021 alone due to chip shortages.

Most of the semiconductor fabrication is now conducted in Taiwan and China, not the United States. There are only a handful of major players in this market. The situation has exposed to all the extent of the limited sourcing which has become very visible as a single point of failure in all Supply Chains reliant on the supply of computer chips.

Another very high profile example involves the recent shortage of Baby Formula. Apparently in the United States there is one factory that was shut down and compromised the delivery of Baby Formula. While there were other dynamics at play, it was clearly a case of having a single point of failure.

Far too many companies and industries have historically focussed on low cost geographic sourcing or single sourcing to enhance leverage in negotiations. By definition previous goals and objectives have led to the creation a a myriad of single points of failure.

This Supply Chain design paradigm is fine when things are operating smoothly. But things are rarely operating that well. Single points of failure invariably lead to problems and cost more in the long run than dual sourcing solutions.

Now when you look at the evolution of the semiconductor fabrication industry you see the same scenario playing out. Whereas the U.S. used to be the manufacturing leader in this space it is now a minor player.

At the same time our reliance on computer chip technology is more pervasive than ever before. We simply can’t function without semiconductors.

As such we can no longer afford to have a single point of failure in semiconductor fabrication.

The Semiconductor Fabrication Problem

According to, Taiwan is the largest semiconductor producing country making up 66% of the global market. Within Taiwan TSMC and UMC are the largest companies. Korea is next at 17%, followed by China at 8%, and the rest of the world is at 9%.

Those statistics say it all. The overwhelming reliance on a single country, or even two countries, constitutes a single point of failure. The global pandemic proved that this single point of failure is real.

As a result countries like the U.S., Japan, and Europe are now committing large amounts of money to establish localized, domestic semiconductor manufacturing facilities within their respective countries.

The Challenges

The necessity of establishing domestic semiconductor fabrication capabilities is essential. But it won’t be easy. There are a number of challenges that will need to be addressed to ensure that these localized factories provide meaningful levels of production, and not just nominal output.

Some of these challenges will be:

  • Access to intellectual property and technology
  • Availability of talent, skills and expertise
  • Employee training and development
  • Money for capital investment and operating expenses
  • Industry specific equipment availability
  • Incorporating a digitally enabled operation and Digital Supply Chain
  • Cost effectiveness and competitiveness
  • Standards development and adherence
  • Quality performance and reliability
  • Localized, robust and resilient Supply Chain creation

Perhaps one of the most significant challenges will be maintaining healthy and sustainable relationships with the current sources of semiconductors while countries are developing a domestic manufacturing capability.

This is critical because the demand for semiconductors will continue to grow indefinitely. Any localized, domestic production will be hard pressed just to handle demand increases let alone displacing the sourcing of existing supply levels.


The result of all of the efforts to address the problem of the single point of failure of semiconductor fabrication will not be to just localize supply. The result will be that countries will have more than one source of supply, potentially.

Atleast they will have a fallback capability and reduce some reliance on Taiwan, Korea, and China in particular. The Taiwanese and Koreans are so far advanced with their investments, intellectual property, talent, and R&D that it will practically take a long time for any other country to catch up. Further Taiwan and Korea will be in the lead in providing state of the art output for a long time to come.

But doing nothing is not an option for the major economic powers of the world. The U.S. and Europe need to take the steps necessary to establish domestic semiconductor fabrication capabilities to augment, but not replace, the current sources of supply.

Originally published on August 9, 2022.