To say global supply chains are disrupted would be the understatement of the 21st century. The shortage of everyday items, from paper products to grocery items, has become part of our accepted routine, showing up in everyday conversations, memes and social media banter.
As the repercussions ripple across retail, commercial and industrial supply chains, organizations and consumers must navigate shortages and delays of both goods and supplies. While all industries have been impacted, perhaps the one bearing the largest supply chain interruption is the automotive industry.
How Did We Get Here?
For starters, sudden drops in vehicle demand at the onset of the pandemic caused car companies to cancel their orders for semiconductors. Chip manufacturers turned to other industries to make up for the sudden decline in orders from automakers. Although consumer interest for new vehicles quickly recovered, capacity from chip suppliers had already been committed to other customers, leaving the auto industry standing firmly at the end of the line. Manufacturers use semiconductors as part of a myriad of products from smartphones to gaming consoles. To date, global chip supplies have not improved and are not expected to do so until late 2022.
For the auto industry, the chip shortage is causing manufacturing delays and drastically reducing new vehicle inventory. A trickle-down effect across all vehicle components is also occurring. Essentially, a lack of chips halts the completion of many components, such as brake systems and starters, sensors and dashboard displays. In response, automakers are stockpiling unfinished vehicles, cutting production and reducing vehicle content options. It’s reported that General Motors Co. is on pace for its worst U.S. sales volume since 1958.
What’s the Prognosis?
Even as some automakers have seen a slight recovery in their chip supplies, factory shutdowns and port delays are still interfering with new vehicle manufacturing. COVID-19 outbreaks lead to labor shortages in the factory and at the port. Even though ports have implemented round-the-clock operations to reduce backlogs as quickly as possible, a record number of ships are waiting offshore in Long Beach and Los Angeles to be unloaded. With barren car dealer lots across the country, the lack of new inventory has spiked the demand for used vehicles, which have increased in price almost 40% since March of 2020.
So, what does this mean for manufacturers, suppliers and new vehicle production and sales moving forward? How will automakers and their suppliers adjust their forecasts to balance supply with demand? Some industry experts suggest that manufacturers move away from just-in-time (JIT) management strategies and commit to carrying larger quantities of safety stock to avoid large-scale shortages. This is not a quick fix, though. Short-term and long-term strategies are being assessed in boardrooms across the globe. For some, like Tesla and Ford Motor Co., the strategy may involve getting into the semiconductor production business themselves. Ford recently announced a partnership with the U.S.-based chip maker GlobalFoundries to develop semiconductors, a deal which the companies claim might eventually lead to joint chip production stateside. Tesla has avoided production setbacks by sourcing different chips and rewriting software on the fly to make them work.
How Can Technology Help?
Auto manufacturers and suppliers looking to manage demand level fluctuations can turn to advanced supply chain planning tools to help internal teams better plan needs, adjust operational schedules and collaborate upstream or downstream as needed. Many organizations manage highly complex supply chains involving hundreds, if not thousands, of suppliers and trading partners. These organizations can benefit from utilizing a digital supply network that enables the company to communicate with suppliers, trading partners and transportation providers. With this highly effective level of collaboration in place, manufacturers can adjust upstream supply chain processes quickly and become more proactive in their decision-making.
For manufacturers in the automotive industry, it’s crucial to shift to Industry 4.0 technologies and solutions that provide end-to-end visibility and consumable data insights to shed light on factors causing delays. This level of insight helps business users throughout the organization make well-informed, timely decisions. It leads to improved overall operations and provides the ability to anticipate disruption before it occurs — while there is still time to analyze risk and make alternative plans. As automotive manufacturers adopt new industry 4.0 solutions, they’ll be able to collaborate with suppliers and customers alike, using advanced analytics in all areas of the supply chain, from forecasting to procurement, production and transportation.
Ultimately, the current global supply chaos has shined a spotlight on the importance of end-to-end collaboration, planning, sourcing and manufacturing capabilities across a company’s entire supply chain network. Systems must engage with a broad array of stakeholders, including all suppliers, sub-contractors and manufacturing partners. This requires companies to shed outdated strategies and move to a proactive approach to supply chain management that incorporates trading partner data into operational processes. With access to cleaner data that rests on a single platform, all roles across the organization have access to the same real-time data and reporting tools, reducing redundancy and time spent looking for critical information. With advanced technology in place, automakers will be able to do what’s best for the business and their customers.
To say global supply chains are disrupted would be the understatement of the 21st century. The shortage of everyday items, from paper products to grocery items, has become part of our accepted routine, showing up in everyday conversations, memes and social media banter.
As the repercussions ripple across retail, commercial and industrial supply chains, organizations and consumers must navigate shortages and delays of both goods and supplies. While all industries have been impacted, perhaps the one bearing the largest supply chain interruption is the automotive industry.
How Did We Get Here?
For starters, sudden drops in vehicle demand at the onset of the pandemic caused car companies to cancel their orders for semiconductors. Chip manufacturers turned to other industries to make up for the sudden decline in orders from automakers. Although consumer interest for new vehicles quickly recovered, capacity from chip suppliers had already been committed to other customers, leaving the auto industry standing firmly at the end of the line. Manufacturers use semiconductors as part of a myriad of products from smartphones to gaming consoles. To date, global chip supplies have not improved and are not expected to do so until late 2022.
For the auto industry, the chip shortage is causing manufacturing delays and drastically reducing new vehicle inventory. A trickle-down effect across all vehicle components is also occurring. Essentially, a lack of chips halts the completion of many components, such as brake systems and starters, sensors and dashboard displays. In response, automakers are stockpiling unfinished vehicles, cutting production and reducing vehicle content options. It’s reported that General Motors Co. is on pace for its worst U.S. sales volume since 1958.
What’s the Prognosis?
Even as some automakers have seen a slight recovery in their chip supplies, factory shutdowns and port delays are still interfering with new vehicle manufacturing. COVID-19 outbreaks lead to labor shortages in the factory and at the port. Even though ports have implemented round-the-clock operations to reduce backlogs as quickly as possible, a record number of ships are waiting offshore in Long Beach and Los Angeles to be unloaded. With barren car dealer lots across the country, the lack of new inventory has spiked the demand for used vehicles, which have increased in price almost 40% since March of 2020.
So, what does this mean for manufacturers, suppliers and new vehicle production and sales moving forward? How will automakers and their suppliers adjust their forecasts to balance supply with demand? Some industry experts suggest that manufacturers move away from just-in-time (JIT) management strategies and commit to carrying larger quantities of safety stock to avoid large-scale shortages. This is not a quick fix, though. Short-term and long-term strategies are being assessed in boardrooms across the globe. For some, like Tesla and Ford Motor Co., the strategy may involve getting into the semiconductor production business themselves. Ford recently announced a partnership with the U.S.-based chip maker GlobalFoundries to develop semiconductors, a deal which the companies claim might eventually lead to joint chip production stateside. Tesla has avoided production setbacks by sourcing different chips and rewriting software on the fly to make them work.
How Can Technology Help?
Auto manufacturers and suppliers looking to manage demand level fluctuations can turn to advanced supply chain planning tools to help internal teams better plan needs, adjust operational schedules and collaborate upstream or downstream as needed. Many organizations manage highly complex supply chains involving hundreds, if not thousands, of suppliers and trading partners. These organizations can benefit from utilizing a digital supply network that enables the company to communicate with suppliers, trading partners and transportation providers. With this highly effective level of collaboration in place, manufacturers can adjust upstream supply chain processes quickly and become more proactive in their decision-making.
For manufacturers in the automotive industry, it’s crucial to shift to Industry 4.0 technologies and solutions that provide end-to-end visibility and consumable data insights to shed light on factors causing delays. This level of insight helps business users throughout the organization make well-informed, timely decisions. It leads to improved overall operations and provides the ability to anticipate disruption before it occurs — while there is still time to analyze risk and make alternative plans. As automotive manufacturers adopt new industry 4.0 solutions, they’ll be able to collaborate with suppliers and customers alike, using advanced analytics in all areas of the supply chain, from forecasting to procurement, production and transportation.
Ultimately, the current global supply chaos has shined a spotlight on the importance of end-to-end collaboration, planning, sourcing and manufacturing capabilities across a company’s entire supply chain network. Systems must engage with a broad array of stakeholders, including all suppliers, sub-contractors and manufacturing partners. This requires companies to shed outdated strategies and move to a proactive approach to supply chain management that incorporates trading partner data into operational processes. With access to cleaner data that rests on a single platform, all roles across the organization have access to the same real-time data and reporting tools, reducing redundancy and time spent looking for critical information. With advanced technology in place, automakers will be able to do what’s best for the business and their customers.
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