Toilet paper and cars – two very different industries with a similar problem. It was not long ago that toilet papers disappeared off supermarket shelves, as consumers braced themselves for the pandemic and the ensuing lockdown. But a similar situation seems to be playing out in the automotive industry too. While the toilet paper shortage could be linked simply to panic buying, the production cutback and plant shutdowns in the automotive industry due to the semiconductor shortage, can be traced to limitations in the supply chain. As vehicles sales rebounded after the lockdown, car manufacturers were left without an adequate plan to manage their supplier relationships, especially after they cut production in the first half of 2020. Europe’s largest carmaker, Volkswagen lost market share in China, while the global automotive industry lost almost $210 billion in revenues in 2021.
The strain on the supply chain is likely to grow, as auto firms focus on electric vehicles, which offer greater connectivity but need more chips. For instance, a Ford Focus car uses about 300 chips as compared to the company’s new electric vehicles, which use 3,000 chips, a report by CNBC stated. To add to this challenge, automotive original equipment manufacturers (OEMs) are competing with PCs and smartphones, as semiconductor manufacturers prioritize the already limited chip supply. With big electronic companies accounting for almost 70% of a semiconductor manufacturer’s revenues, in comparison to the 10% contributed by the automotive industry, chip shortages may continue to be a challenge soon, especially for automotive OEMs.
Besides raw material supply and production, geopolitical issues also have had a ripple effect on the supply chain. For example, the west African country Guinea produces approximately 22% of bauxite globally and exports nearly 50% of it to China for aluminum production. The military coup in Guinea, which took place in September 2021, has put the aluminum supply chain at risk, with the metal even trading a 10-year high price of $2,782 per ton on the London Metal Exchange earlier this year, a report by Bloomberg stated. This in turn could trigger potential shortages or price hikes for both the fast-moving consumer goods (FCMG) and automotive industries.
What’s happened in the automotive industry has exposed the risks of global supply chains. It is also a lesson of how real-time collaboration and an understanding of the gaps between demand and supply can mitigate any supply risk, irrespective of the industry. A big picture approach is key to building flexible, agile, transparent, and resilient supply chains.
Here are five capabilities that will allow automotive OEMs to overcome supply chain disruptions, especially during unpredictable global events:
Riding out the uncertainty with a transparent supply chain
Applying strategies to improve supply chain transparency requires an interconnected ecosystem consisting of product vendors, tier 1 and N suppliers, and retailers besides the product design, production planning, and more. Cloud-based products can make the supply chain more intelligent with features such as proactive risk mitigation, real-time market updates, and price and supplier performance tracking. Intelligent workflows, AI-driven automation, and data analytics can improve decision making, so that OEMs are quick to respond to changing market and supplier dynamics. Moreover, these capabilities can be extended to a variety of manufacturing parts or materials such as sheet metal, aluminum, etc.
The semiconductor shortage is a wake-up call for companies across industries – is there a similar situation around the corner? A connected, intelligent, and collaborative ecosystem, which provides 360-degree visibility into complex and diverse supplier networks, is the way forward.