Hurricane Helene Exposes a Rare-Earth Supply Chain Vulnerability
Hurricane Helene left widespread destruction in western North Carolina. One of the towns impacted is Spruce Pine, the location of the world’s largest deposit of high-purity quartz, an ingredient used in semiconductor manufacturing.
Two mining companies that operate in Spruce Pine, Sibelco and the Quartz Corp., had to temporarily halt operations due to flooding and damage to infrastructure in the area. Luckily, mining operations have since resumed at one of the mines.
The global semiconductor industry is dependent on Spruce Pine as the primary source for virtually all high-purity quartz it consumes. Unfortunately, it is one of only a few places in the world where high-purity quartz is known to exist, and is where it is found in the highest quality. This episode highlights the potential vulnerability of depending on just one source of supply.The high-purity quartz is used to create silicon wafers in a process known as the Czochralski method. The quartz is used to form a crucible that contains molten silicon, from which a large silicon ingot is formed and then sliced into thin wafers that serve as the base layer for building chips. These chips ultimately end up powering all types of consumer electronics – everything from laptops to automobiles.
The disruption in Spruce Pine is an example of a single point of failure – a situation in which a system is configured in such a way that failure in one part of the system causes the entire system to fail.
Avoiding single points of failure comes down to practicing good risk management.
- The first step is to identify the single points of failure. The hardest risks to manage are the ones that have not been identified. Looking at your supply chain, are there any suppliers (or suppliers of suppliers) that are the sole manufacturers of a certain input? To the extent possible, mapping out the supply chain can be helpful here.
- Next, the risk needs to be quantified. This involves determining how likely a disruption is to occur – and if it occurs, how impactful the consequences will be. Are the inputs critical to your operations, or can substitutes be used? Does it seem reasonably likely that a disruption will occur, or is it a remote possibility?
- Next, figure out the top failure points in your supply chain, and start thinking of ways to control those risks. Traditionally, there are four categories of risk controls: avoidance (ceasing the activity associated with the risk), mitigation (reducing the risk by lowering the likelihood, consequences, or both), transfer (shifting the risk to another party through financial or contractual means), and acceptance (moving forward with the assessed level of risk).
One classic risk mitigation strategy is diversification – in the case of the supply chain, this means using multiple sources of supply. Some limited sources do exist in other nations. Artificial quartz substitutes are another alternative, however they are not produced in the quantity needed to satisfy global demand.
Another classic strategy is having a buffer, such as holding an adequate cushion of inventory that can ensure operational continuity in case of a disruption of supply. From an efficiency standpoint, holding extra inventory might not be ideal, but from a risk-management perspective, it may be better to have the inventory and not need it, rather than need the inventory and not have it.
Furthermore, tools like AI and machine learning can enable companies to gain critical visibility into their supply chains by aggregating data from multiple sources, such as from vendors, open source repositories, IoT sensors, and so on. Such analytics can answer supply chain questions that are descriptive (how many days of inventory do we have on hand?) , diagnostic (why don’t we have enough inventory?), predictive (what will happen if supply is disrupted?), and prescriptive questions (what is the best course of action to take to mitigate disruptions?).
Finally, proactive scenario planning exercises can be informative ways to think through potential risks that could occur in the future, what the consequences might be, and how the business can prepare for such disruptions. Asking “what if” questions can help managers understand and stress test their supply chains before a disruption happens.
The impacts on the semiconductor supply chain from the hurricane damage in Spruce Pine have yet to be determined. However, this should be a warning that overreliance on a single point of failure can be risky. To build a truly resilient supply chain, we need to identify such single points of failure and develop proactive plans to mitigate the risks of disruption.
