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As expected, the semiconductor shortage continues to plague the automotive industry with carmakers now expected to suffer losses of $110 billion in 2021, according to a widely reported estimate from Alix Partners. Automakers are working hard to shore up their semiconductor supplies, modifying some vehicles to use fewer chips and considering the possibility of delaying production of 2022 models.
Everyone who follows automotive supply chains knows that there will be no short-term solution: there is massive pandemic-fueled demand for chips and carmakers are competing with consumer electronics manufacturers who secured stock first. And, the long timeframes required to build new semiconductor fabs mean chip supply won’t be flowing anytime soon. But as procurement managers in automotive and other industries look ahead to building more resilient supply chains for the future, Resilinc hopes some key best practices will be kept in mind.
At a minimum, automakers and OEMs in other industries need visibility into multiple tiers of their supply chains and access to early warning systems and market intel so they can anticipate trends in pricing, looming supply constraints, increasing risk levels at important suppliers and other issues. They should also develop and train specialists in different commodity categories to pick up on early warning signs and respond proactively.
Even the best supply chain risk management (SCRM) programs probably would not have enabled automakers to avoid colliding with the pandemic-induced chip shortages. But OEMs in automotive and other industries that have invested the time and money in robust supply chain mapping, risk monitoring and mitigation have seen it pay off in long-term ROI.
One important element of a strong SCRM program is doing risk assessments on suppliers to determine how a supply chain disruption – to that supplier’s goods – would impact your revenue. This often requires a change in mindset—from focusing the most attention on suppliers with the largest purchase orders to focusing on those with the greatest potential to cut into your company’s topline.
As this May 8 Washington Post story details vividly, disruptions at one small automotive supplier in Virginia have forced production cutbacks at the world’s largest automakers. Supply chain woes are at the root of the plant’s issues, with resin supplies choked off by the Texas deep freeze and shortages of a 26-cent cardboard box delaying shipments of $33 parts. When it ran out of 30-lb monofilament line used in oil filters, its procurement staff cleared local retail shelves of heavy fishing line.
A vast range of parts and materials go into a single product, and it’s vitally important for procurement and supply chain staff to know not only where those items come from, but also where their suppliers are getting their supplies. Mapping only one or two products categories or only tier-one and large tier-two suppliers is not sufficient.
Well before the pandemic, some of the worst supply disruptions occurred because OEMs ran short of low-cost commodities. While it’s appropriate to focus on spend when the goal is to reduce costs, to build a more resilient supply chain, it’s vital to look at even the most inexpensive parts and materials when they are critical to products and revenues.
