Challenges in the Global Automotive Supply Chain
The COVID-19 bounceback is well underway for most industries, yet the automotive industry still lags behind. Lack of visibility, component availability, and the rise in demand for electric vehicles have landed automotive manufacturers behind the proverbial eight ball.
In many ways, the challenges that automotive manufacturers have faced for the past few years are of their own making. The prolonged supply chain disruption has turned a corner, and there may be light at the end of the tunnel, but we are not out of the woods yet.
The global supply chain is incredibly complex. Should a single domino fall, the progress made over the past year will quickly fall by the wayside. The best thing that manufacturers can do is implement processes and global systems to gain visibility and improve business intelligence.
Trax helps enterprises improve visibility through augmented data. With data as the driving force, global organizations can reduce transportation spend and improve freight management. By simplifying complex challenges, large-scale company leaders can eliminate inefficiencies and have greater confidence in their decision-making.
Let’s take a closer look at some of the key contributors to the challenges that automotive manufacturers continue to face.
Prolonged Disruption in Automotive Supply Chains
Take a snapshot of other industries, and you will quickly notice that most manufacturers are back to pre-pandemic production levels. Automotive manufacturers are one of the few sectors where the effect of COVID-19 can still be acutely felt.
The prolonged disruption within the automotive space cannot be distilled to a single factor. In many ways, it is the sum of its parts. Here are those parts in no particular order.
Automotive sales dwindled as the world braced for the unknown in early 2020, causing manufacturers to slow production and cancel orders for microprocessors and other key components. Those decisions sent shockwaves that reverberated throughout the global supply chain.
Computer manufacturers scooped up microprocessors, factories worldwide slowed production or shut down completely for extended periods, and domestic production couldn’t accommodate even as demand increased.
In 2021 U.S.-based automotive manufacturers imported 18.3% of their automotive parts, totaling $74.1 billion. With almost one-fifth of components coming from global suppliers, a single disruption in the supply chain resulted in delays and extended lead times.
The focus on electric vehicles (EV) has only compounded the problem, as they require double the amount of tech components that an internal-combustion engine (ICE) requires. While manufacturers couldn’t have foreseen the coming challenges, their actions created a bullwhip effect that has made it more difficult to return to pre-pandemic production levels.
The Bullwhip Effect
The bullwhip effect is a phenomenon in distribution channels, referring to the increasing swings in inventory as a response to consumer demands. Like a real bullwhip, when distortions or changes in the supply chain occur, it sends a wave-like pattern that increases in energy over time.
In the case of the automotive supply chain, the dramatic slowdown in production levels created the initial surge of energy, leaving suppliers scrambling as inventory stacked up. The challenge with the bullwhip effect is that it makes forecasting incredibly difficult for suppliers and manufacturers. Data quickly become outdated, resulting in either excessive inventory or delayed production.
On their own, each of these factors is enough to cause catastrophic losses in revenue. When other issues in the supply chain pop up, like the Suez Canal blockage in 2021, it makes it incredibly difficult for manufacturers to bounce back quickly.
Statistics on Automotive Supply Chain Losses
The disruption within the automotive supply chain had both immediate and long-term effects. The sharp decline in consumer demand and the subsequent delays in the supply chain have cost auto manufacturers hundreds of billions of dollars over the last three years.
Even as demand increased, low inventory levels, container availability, port delays, and longer-than-average lead times on parts have plagued auto manufacturers.
Since 2020, 70% of major car manufacturers have experience line stoppages, with approximately half citing supply chain issues. Traditionally lead times for semiconductor manufacturers have been between 30-60 days. At the height of the pandemic, 150-day lead times became common due to low inventory levels. As consumers started buying at historic levels, getting parts shipped and delivered became another hurdle.
In 2021 alone, car manufacturers lost production for an estimated 7.7 million vehicles due to supply chain complications. When the dust finally settles, the losses experienced by those in the auto supply chain industry will be trillions of dollars.
When Will the Global Vehicle Supply Chain Recover?
Is 2023 the year that auto manufacturers finally turn the corner and return to normalcy? At the beginning of the year, experts were optimistic that production and profits would return to pre-pandemic levels as many supply chain issues have been resolved.
Domestic production of parts and semiconductors is aiding the recovery, but many plants are still in the early stages of development. Once manufacturing facilities reach capacity, we will likely see things level off, but that could be 2-4 years down the road.
As we approach the halfway point of 2023, major question marks remain. While supply has begun to catch up, demand for newer vehicles has slowed globally. Interest rates continue to climb, new vehicle pricing is at an all-time high, and a looming recession prevents a full recovery.
The complexity of the auto supply chain makes it difficult to predict exactly when we will see a return to pre-pandemic production levels. We can say that the recent challenges have highlighted weaknesses in the supply chain, allowing global organizations to improve and safeguard against future volatility.
Trax Supports Global Automotive Supply Chain Leaders
One of the ways to reduce the strain on the supply chain is to invest in global solutions - freight audit and payment being foremost. This provides cost visibility, reduces waste, streamlines communication, and helps improve the decision-making process. The global supply chain is constantly evolving, and if the past three years have taught us anything, it pays to be prepared.
Trax is a global leader in transportation spend management. Our solutions have helped countless global enterprises manage transportation contracts, gain visibility into transportation spend drivers and performance, and simplify complex business processes.
Contact our team for a consultation today for a closer look at our solutions.
Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.