Predictive analysis can help manufacturers and consumers answer the integral “what if” question, proactively reducing the impact of disruptions for the automotive supply chain.
We have engineered supply chains to be as cost-effective as possible. Holding globalisation responsible, manufacturing has been moved to cheaper countries over the years, and businesses no longer contain extensive inventories. However, the global pandemic resulting in the semiconductor chip crisis has led the automotive industry to fall into a snag.
According to a report by McKinsey & Company, the scarcity of semiconductors caused billions of dollars in lost revenue for the automotive industry – as many as 10 million vehicles were lost due to the chip shortage.
However, the shortage that began in the first quarter of 2021, halting assembly lines worldwide, not only affected the automotive industry but impacted the production of everything from smartphones and home appliances to driver-assistance systems.
The automotive industries’ favourite “just-in-time” manufacturing process, widely used to minimise waste and increase efficiency by keeping inventory low, is usually financially beneficial. However, unprecedented events, such as geo-political tensions and a global pandemic, caused unexpected shortages, disrupting the supply chain. Since this was an unanticipated event, automotive players were left to weather the storm with minimal stock.
According to several reports, $210 billion was lost in revenue from the global automotive industry in 2021.
$210B was lost in revenue from the global automotive industry in 2021.
With that in mind, let’s look at 4 trends that can ease automotive supply chain disruptions in the future.
1 – Big data and its analysis
Consumers, businesses, and even governments generate a ton of data that can help automotive manufacturers to identify potential supply chain issues before they arise. Predictive analysis can help manufacturers and consumers answer the integral “what if” question, proactively reducing the impact of disruptions in supply chain.
Additionally, a car requires sourcing components from multiple entities across a vast network, and manufacturers should ensure that they have end-to-end visibility even over the tiniest component with actionable data insights.
2 – Leverage technology to improve processes
Technologies such as artificial intelligence (AI) can help the logistics sector through planning, automated warehousing, autonomous things, analytics, back office, as well as sales and marketing. According to McKinsey, the successful implementation of AI has helped businesses improve logistics costs by 15%, inventory levels by 35%, and service levels by 65%.
AI has helped businesses improve logistics costs by 15%, inventory levels by 35% and service levels by 65%.
Research by McKinsey also estimates that logistics companies that adopt AI into their processes will generate $1.3-$2 trillion per year for the next 20 years in economic value.
For instance, autonomous things such as drones and robotics are already becoming an integral part of logistics, and should have more investment, especially considering the industry’s aptness for AI.
Logistics companies that adopt AI will generate $1.3-$2 trillion per year for the next 20 years in economic value.
3 – Implement multiple sources in the chain
84% of surveyed responders in a Jabil special report note that recent events have clarified the importance of a diversified supply chain.
The question that must be raised is, in case of a regional shutdown or service interruption, how can the partnerships and sourcing strategies be ready to handle the crisis. Manufacturers must look at diversified vendor lists and allow for multi-vendor sourcing wherever possible, or a supplier that works with third-party vendors.
Jabil, an electronics manufacturing services company, also stresses that OEMs and Tier 1 suppliers must ensure that their suppliers and manufacturing partners’ suppliers have the right sourcing strategy and capacity to meet flexible production requirements.
4 – Supply chain for the future of the automotive industry
In the future, the automotive industry’s most important task will be preparedness, whether to handle supply chain disruptions due to unprecedented events such as a pandemic or even due to ongoing and developing geo-political situations. Foundational steps should include creating risk profiles, identifying alternate providers or ones that work with third parties; mapping the grid; and defining critical parts.
To an extent, the outcome of these actions is envisioned to aid the automotive industry in constructing a resilient supply chain.