Microchips may be tiny, but they’ve having a huge impact worldwide, as every industry scrambles to deal with a global chip shortage. Already in short supply before COVID-19, the pandemic quickly pushed the shortage to new extremes, as everyone from car manufacturers to makers of optical lab equipment struggled to find alternative sources.

Increasing demand for chips exacerbated the situation. Chip sales grew by 50 percent in early 2021 due to an increase in PC sales, according to a December 2021 report by Deloitte. Chip purchases by cloud computing data centers rose by 30 percent, further straining the global supply chain. This has forced business leaders, including those in the optical manufacturing industry, to seek out supplier alternatives and change their delivery processes to accommodate possible delays.

A Perfect Storm
Multiple factors drove the chip shortage to current rates that went beyond the pandemic. For lab equipment manufacturers and distributors like Santinelli International, this has meant understanding the factors that are causing shortages in particular regions and having alternative sources for products ready to go to mitigate potential delays.

“Overall, the supply chain disruption as a result of COVID and activities that occurred during COVID,” said Gerard Santinelli, president of the Hauppauge, N.Y.-based company. “But the chip shortage resulted from a fire at Japan’s largest semiconductor manufacturing facility in April, 2020. So it was not COVID-centric, it simply occurred during the COVID era.”

Santinelli believes factors such as COVID and lockdowns in China pushed supply chains to the brink, compounding the chip shortage. “It has been a combination of shipping issues and an overload of demand versus supply,” he said, adding other factors such as travel bans also put stress on the supply chain. He noted that when planes were grounded and boats were docked, it cut off the delivery modes of chips that would be shipped as cargo. “The sea-only option compounded the cargo shipping issue. For manufacturers and importers, it was the perfect storm.”

Like many companies, Santinelli International re-evaluated its relationships with suppliers to ensure business continuity. “The situation has strengthened our relationships with suppliers, and we continued to receive a high level of quality work that our suppliers always do,” said Gerard Santinelli. He added that delays paired with price and cost increases meant having to find alternative products when necessary, without significantly impacting delivery times. “The delays depend on the product.”

Creating a New Supply Line
Andy Huthoefer, VP of product management and marketing at Satisloh, said most optical labs understand reasons for delays in receiving machinery. But with labs returning to regular operations post-pandemic, he believes demand for new machinery will continue to grow, putting additional pressure on manufacturers to meet installation timelines.

“We are working with our electronic suppliers,” Huthoefer told VM. “We are constantly meeting with them and planning closely with him,” he said, adding that his team was quick to pivot to ensure there were no unnecessary delays on product delivery.

Huthoefer said labs are expanding as business returns to normal. The result has been a steady demand for new machine technology.

“The labs are investing again and we are setting a good amount of orders. The problem is the supply chain. But customers know what is going on, and they are understanding.”

Like others in the manufacturing sector of the optical industry, Satisloh has had to source alternative suppliers for chips to ensure machines can be built and delivered on time. This has meant moving away from their built-on-demand model and pivoting to a build-ahead model.

“We would normally build as much as possible just in time for the order. Now we are building some additional machines and are sitting there ready for when chips arrive,” he said. “In general, using those strategies has allowed us to fulfil orders on time.”

Planning for Shortages
Experts predict that the chip shortage will continue well into 2023. This has forced many optical equipment suppliers to re-evaluate their current procurement strategies to maintain delivery deadlines.

At Wisconsin-based OptoTech, this has meant putting steps in place to prevent product shortages. “Delivery of machines was usually 30 to 60 days. Now it is approximately 90 days,” said Optotech U.S. president Jeff Grumbling, adding business continues to be robust for the company and chip shortages have not diminished orders. “It has only affected a small portion of our business and it has stretched our turnaround time from the time the order is placed.”

Grumbling said the company has worked closely with customers to reduce the impact of shortages. “We are trying to encourage our customers to preplan better,” he says, emphasizing that this will ensure that OptoTech has the inventory to support orders. “We have been changing buying strategies by preparing six months in advance.”

Like others in the industry, OptoTech has also begun exploring vendor alternatives and increasing order volumes. He says the company has also improved its customer communication strategies with improved project completion forecasts.

“Our employees are having more frequent communication with our customers, giving them biweekly updates and staying well connected,” noting this has lessened the impact of shortages on customers. “We didn’t miss a beat at all. Last year was one of our best years and we are on track for a phenomenal 2022.”

Grumbling thinks the move towards full automation in labs will continue to increase sales, resulting in higher demand for chips. It will also push up the cost for automation upgrades, causing labs to re-balance investments in capital costs versus people costs.

The Ripple Effect
More than two years into the global chip shortage, a ripple effect is beginning to extend beyond the initial uses for the chips. At MEI, the Italian company whose lens edging machines are a critical part of many optical lab’s production lines, the chip shortage has not only affected the ability to finish building machines but also the suppliers who provide the components necessary to build the edgers. Company president Stefano Sonzogni said this additional strain on production has meant developing “strategic action” to keep production on schedule.

“Our production is not based on receiving materials ‘just in time,’ he explained. “We needed to have the parts available to fulfill customers’ needs. This meant planning before a problem arose.”

Sonzogni said his team has focused heavily on research and development activities throughout the shortage to develop replacement alternatives to lessen the stress of having to find alternative parts and chip sources. “If a chip is not available, we start R&D activity to replace the missing part of the interface. We are managing in-house,” he said, adding that keeping communication lines open with customers has had a significant impact on meeting deadlines. “In the end, there have been delays, but our customers know what is going to happen and we are committed to maintaining our service levels.”