T he automotive industry faces unprecedented challenges in its supply chain management. This is due to factors such as raw material shortages, transportation disruptions, energy price hikes, currency fluctuations and pandemic lockdowns. These challenges have exposed the vulnerabilities of the current supply chain model. The existing supply chain relies heavily on just-in-time inventory practices and global sourcing of critical components such as semiconductors.
Semiconductors are essential for modern vehicles. They are used for various functions such as engine control, infotainment systems, advanced driver assistance systems and electric powertrains. However, the demand for semiconductors has outstripped the supply capacity of chip manufacturers. These manufacturers have shifted their production to more profitable sectors, such as consumer electronics and cloud computing. This has resulted in a global chip shortage, forcing many automotive original equipment manufacturers (OEMs) to cut or halt production. This also applies to their sub-suppliers.
The chip shortage has also highlighted the need for greater visibility and collaboration across the multi-tiered automotive supply chain network. Many OEMs and suppliers lack real-time data on their inventory levels, demand forecasts, supplier capacities and potential risks. This makes it difficult for them to plan ahead, optimise their resources and respond quickly to changing market conditions. Moreover, many OEMs and suppliers have limited options for alternative sourcing of critical components. This is mainly due to the geographical concentration of production facilities and long-term contractual agreements.
What can help improve the supply chain?
To overcome these supply chain issues and build resilience for future growth, the automotive industry needs to reimagine its supply chain model by adopting some of the following strategies:
– Diversify sourcing strategies by developing dual or multiple sources of critical components from different regions or countries. This can help reduce dependency on a single supplier or market and mitigate disruption risks due to geopolitical tensions, natural disasters or trade wars.
– Increase transparency across the supply chain network by sharing data on inventory levels, demand forecasts, supplier capacities and potential risks. This can help improve coordination among supply chain partners, enhance visibility into end-to-end operations and enable faster decision-making.
– Leverage digital technologies such as cloud computing, artificial intelligence (AI), internet of things (IoT) and blockchain to enable real-time data collection and analysis across the supply chain network. This can help optimise inventory management, demand planning, production scheduling and logistics operations.
– Invest in innovation and research & development (R&D) to develop new products or processes that reduce dependency on scarce materials or components. This can help create a competitive advantage by offering differentiated products or services that meet customer needs better than existing ones.
The automotive industry is undergoing a significant transformation driven by megatrends such as electrification, autonomous driving, connectivity and mobility services. These trends require new capabilities and competencies from both OEMs and suppliers. They also need new ways of collaborating and competing in a dynamic market environment. By reimagining their supply chains, the automotive industry players can overcome their current challenges and prepare themselves for future opportunities and growth.