Dividends and For some, supply chain snags a life-or-death issue

We all know more and more machines are using computer chips and that makes the machines better for the operations they do. However, we often forget because computer chips are more and more common when there is a supply shortage, individuals will suffer.

In an article by Peter Goodman of the New York Times News Service, there is a case of a person who has sleep apnea which means he frequently stops breathing while sleeping. He uses a CPAP or continuous positive airway pressure machine which can pump air into his body while sleeping and the patient receives a good night sleep. One of the components of the CPAP is a computer chip and every once in a while, the machine needs new computer chips.

Computer chips are in short supply, refer to the auto companies, the chips are in short supply to machines. The President of the ResMed, Michael Farrell, for his clients is on a mission to receive more chips. Mr. Farrell has spent his time trying to find out where the supply system is down and trying to gain more chips for his company. The issue is his company is a small user of the chips and the big companies such as auto companies and cellular communications companies are large users. Who gets the chips. In Mr. Farrell’s case, he has come to understand it is not that chip makers can ramp up production because it takes 2 years of lead time and billions of dollars. In addition, in North America, Europe medical devices manufacturers are governed by strict safety standards that limit their flexibility in adapting to trouble.

Mr. Farrell dived into supply system problems and as he worked backwards, he discovered 5 levels up the Taiwanese manufacturer of silicon wafers had no inventory. That meant the company that combines the wafers and circuitry could not produce more components and the company that takes combines the output into clusters could not make more of them. The maker of the circuit board could not buy clusters to send to ResMed factories to go into machines.

Linking to dividend paying stocks, all companies have supply systems and when they work on time and controlling inventory costs, they work wonderfully. When they do not work, people ask why not do more in house? however the answer is not always a straight forward as one may think it is, unless a company has billions of dollars to do what they need to do. In your investments, how does the supply system work best and when it is down?

There are more questions than answers, till the next time – to raising questions.

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