We now know by what measure COVID-19 jeopardized the health of global automotive supply chains. Its impact was acute, elucidating just how tenuous the industry’s balance upon the razor’s edge has been. Now, with two new crises on hand—the semiconductor chip shortage and the Ever Given having run aground—it’s time for quick, decisive action.
The automotive supply chain can’t go on like this and meaningful change has to come from all sides.
New Crises Beckon New Automotive Supply Chain Strategies
Although global trade has made remarkable strides in recovering from the pandemic’s impact, two new crises arising in the spring of 2021 have driven home just how pervasive the new automotive supply chain management needs to be.
The more widely known of the two crises? Evergreen’s tanker, Ever Given, which became lodged across the Suez Canal for six long days in March 2021.1 With a whopping ten percent of global trade passing through the Canal, this event demonstrated the fragility of all the supply chains which rely upon it.1
Building general flexibility—read: excess—into the supply chain doesn’t, itself, absorb the repercussions sustained when a tanker runs aground in Suez. This crisis saw hundreds of ships backed up in the Canal, waiting for Ever Given to be freed. Hundreds more detoured around the Cape of Good Hope, South Africa. Both cost millions in delays.2
The second crisis is more serious than even the stranding of a cargo ship that crippled global trade for six days. A serious shortage of a semiconductor chip required to manufacture motor vehicles has arisen globally, resulting from 2020’s COVID-19 automotive production delays and fierce competition as consumers load up on other electronics like laptops and gaming devices.3
While the automotive industry depends on the steady supply of such chips so, too, do many other consumer sectors. Competition for chips has increased as manufacturers return to work, seeking to make up for losses in 2020.
“The current crisis is essentially a self-inflicted wound, albeit an understandable one given how well the just-in-time philosophy has served automakers over time,” says Daron Gifford at Automotive News.4
The result? American automakers will produce 1.2 million fewer units in 2021. The shortages have already caused the idling of several GM plants in the US—measures which impact over 10,000 jobs. And the chip shortage has no certain end in sight.3
Building Dynamic Flexibility into the Automotive Supply Chain
Creating simple flexibility in the supply chain would solve many of its issues—but that’s not enough. Rather than simply shifting from a “just in time” methodology to a “just in case” inventory structure, stakeholders must create flexibility which is dynamic and responsive.
Work like this is expensive. Building up a profit margin to outlast events like the chip shortage requires massive capital investment. But the key to developing dynamic flexibility and responsiveness in the supply chain is adopting the correct tools.
Embracing Automation and Artificial Intelligence in Collaborative Supply Chains
Making use of tech like machine learning and automation bring down overhead while creating extra value in the supply chain, ultimately working to balance the cost of up front investment over time. This investment pays other dividends, too: automation and AI not only uses state of the art technology to create value on plant floors and in shipping routes, it creates the opportunity for stakeholder collaboration.
“Pooling capital resources to cover the hefty initial costs for facilities and equipment would be another viable alternative to spread the risk and volumes,” writes Gifford.4
The issue with the semiconductor chip shortage could have been predicted and perhaps even mitigated with proper supply chain management. Using data collaboratively, as in sharing forecasting and output data with stakeholders both up- and downstream in the supply chain, allows everyone to react to potential problems, smoothing out the chain in the process.5
“They need more transparency in their chip supply chain, beyond Tier 1 suppliers, to get a faster line of sight that will enable them to head off problems,” says Gifford. “Korean automakers Hyundai and Kia have been relatively unfazed by the crisis, likely because their suppliers are more localized in South Korea and part of their supplier “family,” giving them greater visibility and control over their chip supply.”4
Machine learning also makes it possible to flag potential problems in the supply chain months in advance; using millions of data points, AI can identify abnormalities in ways humans simply never could. This is especially true if that data is collaborative.
Building Better Contingency Plans
AI and automation lend themselves to the building of better forecasting models and contingency plans. In theory, the industry could have planned for and diminished the impact of the chip shortage. But no one could have predicted that the Ever Given would run aground. This is why flexibility must be responsive and dynamic. Forecasting for shortages months in advance won’t account for emergency circumstances.
Using artificial intelligence, machine learning, and automation, stakeholders are able to create robust contingency plans informed by dynamic data points. In the case of the Ever Given, both the ships held up in the Canal and those routed south around South Africa were delayed by weeks. In levelling up contingency plans, making use of demand reports and network optimization solutions, stakeholders can react more quickly to transport mode disruptions, route disruptions, and extreme events like weather, stranded cargo ships, or even the Fukushima earthquake that disrupted supply in 2011.6
It’s time for the automotive industry to collaborate in building a better supply chain management strategy. The automotive supply chain has been stretched thin for too long. This makes the entire industry less able to respond to crises. Using better tools, building in more flexibility, and creating thorough contingency plans are the only options.