Supply Chain

Almost no product is created in a single place. A phone consists of metals from Africa, components from Asia, and software from the USA. Every company that contributes something on the way from raw material to finished device is part of a long sequence. This sequence is called a supply chain. It encompasses mining, factories, transport companies, intermediaries, and the final sale. The name fits well: if one link fails, the whole chain is affected.

Why a single missing component can stop entire factories

A supply chain is only as strong as its weakest link. A car needs thousands of parts, and it only drives once all of them are present. If a two-euro chip is missing, the entire vehicle sits idle in the factory. This is exactly what happened in 2021 and 2022: due to a worldwide chip shortage, major automakers had to halt their production lines for weeks.

Added to this is a dangerous concentration. The world’s most advanced computer chips are manufactured almost exclusively in Taiwan, where a single company holds the largest share. The machines that expose these chips, in turn, are built by only one company in the Netherlands. Such chokepoints are called bottlenecks. Whoever controls them holds political and economic power.

That is why supply chains have long been a topic in the news and on the stock market. Governments are funding domestic chip factories with billions in order to become less dependent. Investors pay attention to how vulnerable a company is through its suppliers. And laws increasingly require companies to check working conditions at their suppliers.

From raw material to shelf: the stages

At the beginning are raw materials: sand for silicon, copper for cables, lithium for batteries. These materials go to companies that turn them into intermediate materials, such as purified silicon wafers. Next come factories that manufacture individual components, for example chips or displays. Only at the end does a plant assemble everything into the finished device. Between each stage lie transport, customs, and warehousing.

Experts speak of an upstream and a downstream side. Upstream means everything that happens before one’s own operation, meaning the suppliers. Downstream is everything after: retailers, shipping, customers. Large corporations have not only direct suppliers, but also their suppliers' suppliers, and so on. These levels are called Tier 1, Tier 2, and so forth.

For a long time, it was considered smart to keep as little in stock as possible. Under this principle, called just-in-time, parts only arrive shortly before installation. This saves money but makes things sensitive to any disruption. Since the disruptions of the pandemic, many companies are once again building up larger reserves and seeking second-source suppliers. This safeguard costs margin but reduces the risk of a total failure.

Supply chains in tech news and in everyday life

When a new game console is sold out for months, a supply chain problem is almost always behind it. The AI boom depends on this too: the specialized chips for AI data centers are scarce because chip manufacturing and packaging are not growing fast enough. Reports of wait times of many months for such chips are direct supply chain news.

Politics also intervenes here. Export bans on certain high-performance chips to China are interventions in a supply chain. The same goes for the German Supply Chain Act, which requires large companies to check for child labor and environmental damage at their suppliers. An earthquake in Taiwan or a blocked Suez Canal affects prices in European stores within weeks.

A common misconception is that the supply chain is merely transportation. Logistics is only one part of it. Just as important are planning, procurement, quality control, and contracts with suppliers. Software helps predict inventory and orders, and this is exactly where many AI applications are now being applied.