SEATTLE, WA / ACCESSWIRE / May 27, 2022 / Keeping large automotive plants running smoothly is challenging at the best of times. Hundreds of thousands of individual components need to be available at just the right time on the plant floor to avoid costly line shutdowns.
For years, suppliers and vehicle manufacturers worked hard to manage supply chains tightly to lower overhead costs. But much of that came undone during the pandemic as supply chains were disrupted by labor shortages and there was high uncertainty around the quantity of product available and the timing of delivery.
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Even prior to the onset of the pandemic, the Business Continuity Institute estimated that 56% of businesses suffered a supply disruption annually. More recently, the impact has been amplified by economic and political events including the war in Ukraine.
According to many suppliers we interviewed, the pain has been felt most by Tier 1 automotive part suppliers forced to accept price increases from their vendors and unable to pass these on to the vehicle OEMs they supply.
Roger Jollis, VP of Product Management for Tier 1 supplier Harmon International said some suppliers can’t be counted on to follow through with their order commitments, further increasing the risks. “We have no choice but to either eat the loss or figure out ways to make production more efficient so that we can make up for the price increases,” he said.
Other suppliers point to market factors outside of their control influencing supply and availability. “We are under a lot of pressure from the upstream supply chain due to increasing energy costs and disruptions in planning and transportation,” said Arnd Franz, CEO of automotive aftermarket parts supplier LKQ Europe.
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Semiconductor shortages are also having a profound effect on vehicle production. “Our normal lead time to get to market used to be three to four months,” according to Neset Fatih, CFO of Turkish bus manufacturer Anadolu Isuzu. “Now, it’s likely to be six to eight months depending on if the microchips get delivered on time.”
Lead times have stretched significantly for many components. Jim Moise, VP at Tier 1 supplier Modine Manufacturing mentioned lead times increasing from eight weeks to nearly 26 weeks over the last two years. “This has a huge impact on our ability to manage adequate inventory levels.”
Suppliers and OEMs hinted at ways to blunt the impact of dysfunctional supply chains. Aicha Evans, CEO of autonomous electric vehicle company Zoox, talked about more transparent communication. “We have very open relationships with our suppliers, we assist them by granting visibility into lead times, to know exactly what’s needed, when, and why,” Evans said. Close relationships with suppliers will be even more important to Zoox than traditional vehicle OEMs because of their unique model. Evans said Zoox is planning to use many of the same core components as other OEMs, but with different packaging to ensure safety.” Our parts are coming from traditional Tier 1 and Tier 2 automotive suppliers,” she said. “But we architect vehicle systems to our needs. For example, our drive train is totally bespoke. We are also going to be monitoring hardware systems very closely and using AI to infer that something might go wrong before it goes wrong and then do something about it.”
John Stewart, Principal at MiddleGround Capital, invests in automotive suppliers and expects more vehicle OEMs to share the risk of creating new technology with Tier 1 suppliers to reduce long-term financial risk for both parties. “The Tier 1 supplier benefits from a more secure long-term relationship and the OEM benefits from access to new technology which they get at a lower cost than if they developed it internally,” Stewart said. He added that this trend will become more important as many OEMs transition to electric vehicles and further autonomy and need to access completely new technology for many vehicle subsystems.
Suppliers also recognize that supply chains can only ultimately improve with better forward visibility on vehicle demand. Many are still using old demand forecasting solutions which are not able to anticipate disruptions and variables in specific regions and by product lines. Beda Bolzenius. former President and CEO of Italian Tier 1 auto supplier Magneti Marelli believes many Tier 1 suppliers will need to invest in advanced forecasting technology to run lean organizations in the future. “We need more sophisticated IT systems to better predict demand,” he said. “I don’t think a standard ERP system is enough, especially for individual companies which don’t have the scale to develop such sophisticated systems in-house.” Finally, Wojciech Górski. production control & logistics manager with global tier 1 supplier Katcon weighed in. “I personally think that forecasting for Tier 1 suppliers can be mostly improved by integration with OEM forecasts – this is getting OEMs market forecasts (pre-processed by their ERP planning). But that is hard to get”
With auto suppliers likely dealing with the supply chain crisis for at least another year, there is a pressing need to invest in technology solutions that create more future certainty and allow better short-term and long-term inventory planning. The companies making these investments sooner will have a distinct advantage over their competitors and are expected to have healthier balance sheets long-term.
About Vizen Analytics
Founded by entrepreneur Greg Foster, a supply chain business development leader, Vizen offers an advanced supply chain platform that helps automotive suppliers future-proof their supply chains to be more resilient within unpredictable market conditions, by accurately predicting lead times, labor productivity, and future product demand. Saving time and money.
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Company Website:https://vizenanalytics.com/
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