Every year at HITEC, there’s a new buzzword. We remember the days of “big data”, “PCI” and “blockchain”. If you weren’t talking about them, then you weren’t hanging out with the cool kids. This year’s buzzword didn’t have people running to the store to buy jars of salsa, but instead feverishly getting their electronics orders in ASAP.
The “chip shortage” was definitely a topic of a lot of conversations this year at HITEC. Customers are constantly asking vendors when they will receive hardware such as displays, access points, switches – just about any type of common electronic. Vendors then constantly try to get updates from suppliers, jockeying for position on allocation prioritization for when shipments do arrive to the United States.
What started this mess? Can our industry learn from how the automotive industry has survived? I thought I would take a look into how some vendors are navigating this current event that seems to not be related to the tortilla industry after all.
When COVID hit, a lot of semiconductors or “chips” were diverted to fill the overwhelming need of electronics for people stuck at home. However, other factors were involved that supplemented the shortage outside of supply chain issues. Factories didn’t have enough people to work to manufacture chips due to the pandemic. Other natural disasters in high-yielding, chip-producing countries also contributed to the problem. Taiwan experienced a devasting earthquake, Texas shut down due to the “Big Freeze” this past winter, and then the resurgence of COVID in Japan and Malaysia definitely took a toll. The world could not catch a break.
The first sign that alerted the public of this issue was most likely from the automotive industry. Vehicles require anywhere from several hundred chips to more than a thousand. These chips control everyday functionality in cars such as the ignition and braking systems. They basically tell the hardware what to do electronically. Car manufacturers forecasted the impact of the pandemic incorrectly. They assumed the sales of vehicles would slow, due to people losing jobs and wanting to save money. However, the opposite happened. Consumers wanted to get out and travel outside within their own means, and the automotive industry couldn’t pivot quick enough to restart factories and build more cars.
Why can’t we just make more chips? It takes a very long time (several years) to build a chip fabrication facility as well as refining the manufacturing process to produce a high-yield of chips. Companies don’t want to invest in new facilities now and scale up to only have demand of chips go back down in a few years by the time they have their facilities ready. Even the current U.S. Administration is trying to address the situation by examining how to bring more chip manufacturing into the U.S. – but that will cost billions of dollars and won’t help for today’s crisis.
The automotive industry has tried to persevere in several different ways. Some companies are forging relationships directly with semiconductor chip companies. Some car brands are dropping features that require chips, like blind-spot detection and software for fuel-management. Tesla even removed their lumbar support! Some companies are still continuing to build vehicles and set them aside in parking lots, waiting for chips to arrive. Either way, factories continue to idle and cut production in Asia, Europe and the U.S., causing low inventory levels and driving up costs for consumers. The days of the epic car deal is dead.
How long is this going to take to get back to normal? That’s the million-dollar question. Most anticipate we won’t see any relief until Q3 of 2022. Several hardware vendors in our industry have had to raise prices and figure out creative ways to work with distributors and prioritize orders fairly with tactics such as new construction projects trumping renovations in determining who gets what. Some have alluded to the new normal by only offering Wi-Fi in the lobby and not in the guestrooms due to the limited number of access points available. Is that ideal over shutting a whole floor of guestrooms down? Perhaps. But guest impacts will be severe either way.
How have some of our industry vendors continued to operate successfully? Salto, a popular provider of smart access control solutions in the hospitality industry, anticipated the shortage in such a way as to secure an additional provider. Their new XS4 Original+ lockset carries the new provider chipset (along with the latest technology) and thus allowed them to allocate more of the existing chips to other products, resulting in shorter delivery times for all products, older and newer.
A popular VAR in the television display space mentioned that they have been successful with the shortage issues by setting proper expectations with their clients from the very beginning. This included being proactive by calling properties to recommend that they order and hold a decent amount of attic stock while inventory levels were still decent. They worked with management companies and general managers across their customer set and provided a template that they could use to send out to the properties to take orders efficiently to get attic stock. Hotels were also advised to reach out to sister properties to help each other out.
Once the ability to order attic stock was diminished due to inventory levels that dried up, the vendor pivoted to offering different products that weren’t as popular yet had shorter lead times for delivery. This sometimes included an increase in price, but most hoteliers understood and accepted the higher costs as a result of the current worldwide issue.
In the end, constant communication is key to surviving the chip set shortage. Daily updates with manufacturers as well as suppliers receiving real-time updates on what is in stock is necessary. And while this probably triples the amount of work and time involved, it’s mandatory to keep healthy relationships with your customers. Another piece of advice to offer to help circumvent the shortage issues would be to expedite any current network projects you may have by focusing on the planning and design phase so you can formulate an accurate bill of materials right now. This will allow you to place an order with confidence so it will be delivered within expected timeframes when you are ready for installation. Then, begin working on your next project while inventories are being replenished. Hopefully that will help alleviate anxieties while waiting for equipment. As the old saying goes, “a watched pot never boils” so diverting your attention to something more exciting may help – like a big plate of nachos!