Electronics Supply Chain

[rahulrazdan][✓ rahulrazdan, 2025-06-16]

In product development, the initial focus is on functionality and differentiated value. As discussed in the governance sections, the next stage is to make sure the product conforms within the appropriate regulatory frameworks connected to safety and shared usage. The final stage and perhaps the most important stage is that of consistently delivering and supporting the product in the marketplace. To consistently deliver the product, one must manage the supply chain which drives the forward delivery of the product. In addition, as customers interact with the product, there is a reverse flow which involves reparability, diagnostics, and in most situations safe disposal.

For most products, the mechanical component supply chain, maintenance, and calibration have a well-formed rich history. As discussed, recent history has seen a large infusion of semiconductors. Supply Chain Management (SCM) refers to the strategic coordination of procurement, production, logistics, and distribution processes to ensure timely and cost-effective delivery of materials and systems [61]. The SCOR model, developed by the Supply Chain Council (SCC), is a widely used framework for designing and evaluating supply chains [62].

Each phase integrates digital tools and real-time analytics to ensure supply resilience and performance traceability.

Lean Supply Chain Management

Lean SCM focuses on minimizing waste (time, material, cost) across the chain while maximizing value for the customer [63]. In autonomous system production, Lean methods include:

• Kanban scheduling for just-in-time component delivery.
• Standardized work procedures for repetitive integration steps.
• Continuous improvement (Kaizen) loops based on test feedback.

Lean thinking improves agility in responding to rapid technological changes and component obsolescence.

Agile and Digital Supply Chains

Recent developments have introduced Agile Supply Chain concepts, emphasizing adaptability, visibility, and rapid reconfiguration [64]. Digital Supply Chain (DSC) technologies such as:

• IoT-based asset tracking
• Blockchain-enabled traceability
• AI-driven demand forecasting
• Digital twins of supply networks

Risk Management and Resilience Building

Supply chain risk management (SCRM) in autonomous systems involves proactive identification and mitigation of disruptions:

• Supplier diversification: multiple qualified vendors for critical components.
• Regionalisation: developing local manufacturing hubs.
• Inventory buffers: maintaining safety stock for high-risk parts.
• Scenario simulation: modelling responses to geopolitical or pandemic-related events.

AI-based SCRM tools (e.g., Resilinc, Everstream) now monitor supplier health and logistics delays in real time.

Challenges in Supply Chain Management

Environmental and Ethical Constraints Supply chains for autonomy-related technologies often rely on materials such as lithium, cobalt, and rare earth metals used in sensors and batteries. Ethical sourcing, sustainability, and carbon accountability are now critical supply chain dimensions [53].

Example: Regulations aimed at preventing the sourcing of minerals from conflict-affected regions—particularly in parts of Central Africa—focus on “conflict minerals” such as tin, tungsten, tantalum, and gold (3TG). In the United States, Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires publicly traded companies to conduct due diligence and disclose whether these minerals originated from the Democratic Republic of the Congo or adjoining countries, while the European Union enforces similar supply-chain due diligence under the EU Conflict Minerals Regulation. These frameworks compel companies to trace supply chains, implement risk mitigation processes aligned with OECD guidance, and publicly report sourcing practices to reduce the financing of armed groups.

The Rise of Supply Chain Cybersecurity As hardware and software become interconnected, supply chain cybersecurity has emerged as a critical risk domain. Compromised firmware or cloned microcontrollers can introduce vulnerabilities deep within a system’s hardware root of trust [54]. Security frameworks such as NIST SP 800-161, ISO/IEC 27036, and Cybersecurity Maturity Model Certification (CMMC) are being applied to mitigate these threats.

Ground Systems:

In terms of ground systems, the automotive industry has evolved over time to a very optimized supplier structure with Original Equipment Manufacturers (OEMs), tiered series of suppliers (Table 1).

Table 1. Short lifecycle versus LLC products.

Further, much like the US Department of Defense, automotive companies traditionally require chips with automotive grade certification. Automotive-grade components require stringent compliances. (Passive components need AEC Q200, ASILI/ISO 26262 Class B, IATF 16949 qualification while active components, including automotive chips, should be compliant with AEC Q100, ASILI/ISO 26262 Class B, IATF 16949 standards).

Airborne (Aerospace)

In aerospace, the supply chain evolved around regulatory certification authority and system safety long before cost optimization became dominant. As aircraft systems transitioned from analog to fly-by-wire and software-intensive architectures, standards such as DO-178 (software), DO-254 (hardware), and ARP4754 (system development) forced a structural shift: Tier-1 suppliers became deeply embedded in certification artifacts, not just hardware delivery. Companies such as Honeywell and Raytheon Technologies (Collins Aerospace) do not merely supply components; they co-own verification evidence, safety analyses, and traceability matrices required by the FAA/EASA. This creates a tightly coupled, long-cycle ecosystem where primes like Boeing act as system-of-systems integrators, and switching suppliers is extremely costly due to certification recertification burdens. The airborne model therefore evolved into a high-barrier, risk-sharing, assurance-centric hierarchy.

Marine

Marine supply chains historically centered on shipyards and mechanical systems, with less formalized tier structures than aerospace. Oversight came from classification societies (e.g., DNV, ABS) rather than centralized regulators, and vessels were often semi-custom builds. However, as digital navigation, dynamic positioning, and now autonomy have increased system complexity, Tier-1 marine technology firms such as Kongsberg Gruppen and Wärtsilä have moved closer to aerospace-style system integration roles. Unlike automotive’s scale-driven tiers, marine tiers evolved around project integration and compliance with flag-state and class requirements. The current autonomy push is accelerating a transition toward software-centric supply chains, but production volume remains low and customization remains high, keeping marine structurally more fragmented than aerospace.

Space

The space industry began as a vertically integrated, government-driven ecosystem dominated by primes such as Lockheed Martin and Boeing under cost-plus contracts with agencies like NASA and the DoD. Reliability and mission assurance, not cost efficiency, defined supplier relationships, and specialized radiation-hardened component vendors formed niche Tier-2/3 layers. In the last decade, however, companies like SpaceX have reintroduced vertical integration to compress development cycles and control risk across propulsion, avionics, and launch operations. The result is a bifurcated supply chain: one high-assurance national security chain with traditional tier structures, and one commercially agile “NewSpace” chain that blends COTS components with vertically integrated primes. Certification and mission risk, rather than volume economics, remain the dominant structural forces.

Semiconductor Economics:

The cost of building a semiconductor device is dominated by three interacting factors: design (NRE), wafer fabrication, and volume, all of which are tightly linked to lithography node. At advanced nodes (e.g., 5 nm, 3 nm), non-recurring engineering (NRE) costs can exceed hundreds of millions of dollars due to mask sets, EDA complexity, verification effort, and IP integration, while wafer costs rise sharply because of EUV lithography, tighter process control, and lower initial yields. As a result, cutting-edge nodes only make economic sense at very high production volumes, where fixed design and mask costs can be amortized over millions of units; otherwise, the cost per die becomes prohibitive. Conversely, mature nodes (e.g., 28 nm, 40 nm, 65 nm) have far lower mask and wafer costs, stable yields, and shorter development cycles, making them economically attractive for automotive, industrial, and mixed-signal applications where performance density is less critical and production volumes may be moderate rather than massive.

Production volumes differ markedly between advanced and mature semiconductor nodes because of economics and application mix. Advanced nodes (e.g., 5 nm, 3 nm) are typically justified only for extremely high-volume markets such as flagship smartphones, data-center CPUs/GPUs, and AI accelerators, where tens of millions—or even hundreds of millions—of units can amortize enormous design and mask costs. In contrast, mature nodes (e.g., 28 nm, 40 nm, 65 nm and above) support a much broader diversity of products—automotive MCUs, power management ICs, analog, RF, and industrial controllers—often produced in moderate but long-lived volumes over many years. While individual mature-node programs may ship fewer units annually than leading-edge mobile processors, the aggregate volume across applications is extremely large and more stable over time, which explains why mature-node capacity remains strategically important despite the industry’s focus on leading-edge scaling.

Today, automotive volumes are sufficient to drive unique semiconductor designs on mature nodes, but generally all the cyber-physical domains must use standard parts.

In product development, the initial focus is on functionality and differentiated value. As discussed in the governance sections, the next stage is to make sure the product conforms within the appropriate regulatory frameworks connected to safety and shared usage. The final stage and perhaps the most important stage is that of consistently delivering and supporting the product in the marketplace. To consistently deliver the product, one must manage the supply chain which drives the forward delivery of the product. In addition, as customers interact with the product, there is a reverse flow which involves reparability, diagnostics, and in most situations safe disposal. Figure 1 below shows these flows. Finally, the connection of the product to the environment must be adjusted periodically in a process known as calibration.

Figure 1

For most products, the mechanical component supply chain, maintenance, and calibration have a well-formed rich history. Today, the big megatrend which is impacting all of these aspects of product designs is the introduction of electronics (hardware, software, and now AI). We will now consider the impact of electronics on the product delivery function. The underlying components for electronics are semiconductors. The semiconductor industry is driven by several important underlying factors: Lithography dominates the cost of advanced process nodes in semiconductors, which has a massive impact on the cost of designing and building a modern manufacturing facility. The cost of lithography also has an impact on design where the size of design to be built, the associated electronic design automation tools, and mask sets also scale up with advanced nodes. Additionally, given the costs, the economics of semiconductor design is that custom advanced digital semiconductors only make economic sense for markets with high volume. This hard economic fact has optimized the semiconductor industry towards consumer-driven short lifecycle products. Thus, in these very high-volume consumer markets, large numbers of staff from semiconductor companies work with their system counterparts to effectively co-design the final product.

As the process reaches advanced nodes, the opportunity cost of maintaining older designs and fabrications becomes very high. Thus, most modern semiconductor vendors start end-of-life processes for parts on older process nodes. Various governments which want to start semiconductor operations build capability on lagging nodes. Today, the massive investment by China on semiconductor fabrication has created a near monopoly for lagging nodes. This process has the potential to provide an immense supply of parts but creates an external, perhaps unreliable, dependency. Even worse, the lack of supply creates a dark market which enables counterfeiting and sometimes even security issues.

Lastly, in general, chips are built for the reliability of the consumer marketplace and specialty process changes are expensive and rare. The combination of these factors results in a situation where the consumer marketplace dominates the definition, investment, and specifications for the semiconductor industry. As a simple illustration of scale, Apple itself spends more on research and development than the top defense prime contractors combined. We broadly refer to the non-consumer marketplace as long lifecycle (LLC) markets, and the divergences between short lifecycle and LLC are listed in Table 1.

Table 1. Short lifecycle versus LLC products.

Meanwhile, software (and now AI) are key drivers of value for products with two critical features: OTA updates and open-source development models. As discussed earlier, OTA processes provides a very powerful capability to dynamically update the product in the field but create an issue for V&V as well as cybersecurity. In terms of the supply chain, software components become part of the supply chain and must be managed carefully. Open-source communities are the second powerful force because they allow for crowdsourcing of innovation. Open-source systems (e.g., Linux) have become dominant despite the efforts of major industrial players or even countries. Open-source environments provide enormous value and often cannot be ignored, yet the challenge for safety-focused, cyber-physical systems is the ability to manage the issues of V&V, cybersecurity, and the software supply chain. As these megatrends from the IT world crash like big waves into the traditional LLC world, the consequences are profound in many dimensions (i.e., industry structure, economic incentives, geopolitical factors). To illustrate this, Table 2 outlines the well-known supplier structure for the automotive industry with OEMs and Tier 1, 2, and 3 suppliers.

Table 2. Traditional automotive supply chain.

Today, OEMs consume whole subsystems from Tier 1 vendors who are providing an increasing amount of electronics content. Since the systems are built separately, the integrated product is an accumulation of the various systems provided by the vendors. The result is an explosion in semiconductor product skews and large complexity in the software stack. The consequences include a massive exposure to obsolescence for semiconductors and software, higher cost due to a lack of integration, and a dearth of future flexibility. Meanwhile, the automotive industry is moving rapidly towards the concept of a Software Defined Vehicles (SDV) with a release structure very similar to IT server products.

Traditionally, for new products, the automotive industry has focused on concepts of lean manufacturing and “just-in-time” inventory management which prioritizes minimizing inventory levels at all stages of production. In a world dominated by OEM-driven demand, this paradigm worked reasonably well. However, with the accelerated usage of electronics, automotive OEMs increasingly find themselves managing a supply chain where they are the minority drivers for demand, or worse—the primary drivers for legacy semiconductors. This effect was most pronounced following the COVID-19 pandemic when the supply for semiconductors could not keep up with the demand.

Further, much like the US Department of Defense, automotive companies traditionally require chips with automotive grade certification. Automotive-grade components require stringent compliances. (Passive components need AEC Q200, ASILI/ISO 26262 Class B, IATF 16949 qualification while active components, including automotive chips, should be compliant with AEC Q100, ASILI/ISO 26262 Class B, IATF 16949 standards.) However, these requirements are not embraced by the much bigger consumer marketplace, and the divergence imposes a large constraint on the automotive supply chain. For similar reasons, the Department of Defense responded to this reality with an aggressive commercial off-the-shelf (COTS) approach [43]. From a supply chain management perspective, LLC designers must manage the issues of supply chain by employing techniques such as the following:

1. Parts obsolescence: A smaller number of programmable parts minimize inventory skews and the aggregation of function around a small number of programmable parts raises the volume of these parts and thus minimizes the chances for parts obsolescence.
2. Redundancy for reliability: Reliability can be greatly enhanced using redundancy within and of multiple programmable devices. Similar to storage via a redundant array of independent disks, one can leave large parts of a programmable fabric unprogrammed, and dynamically move functionality based on detected failures.
3. Future function: Programmability enables the use of OTA updates to adjust functionality dynamically. This is critical for building strong aftersales business models and remote maintenance.

In terms of supply chain and software, the traditional aerospace sector has commonly lagged behind the automotive sector in terms of absorption and impact of electronics. Much like automotive, airborne systems had been absorbing semiconductors from legacy nodes and largely working with proprietary software. However, the introduction of AI for aircraft safety systems—and certainly the newer form factors of drones and delivery vehicles—has accelerated this shift. From a semiconductor perspective, markets such as airborne, marine, and space systems must largely use standard parts, typically at a very low level of integration, to build final system function. The result is higher cost and lower performance. Finally, the increased use of electronics for sensors has introduced an additional requirement for in-field calibration.