7 Automotive Supply Chain Issues Putting the Brakes on Production
What’s in Store for 2024
Supply chains all around the world have been hit by wave after wave of challenges, and the automotive industry is certainly not immune. Instability plagues the global supply chain, as the last few years have been fraught with disruptions and delays of critical components. From visibility concerns and electric vehicle growth to inventory management issues, microchip shortages, and pandemic fallout -- company leaders need to shift their priorities.
1. Visibility is an Issue (monitoring)
Regardless of the industry, supply chain visibility is a constant concern. However, the automotive industry is particularly vulnerable to visibility issues due to the number of components and the global supply chain ecosystem. In fact, only 6% of all companies report complete visibility.
On average, vehicles consist of around 30,000 components, making supply chain visibility a must. Auto companies simply can't afford to overlook any stage of the manufacturing process. The repercussions can have a lasting impact on the procurement process, such as:
- Inventory shortages or overstocking
- Major delays
So, how should the automotive sector respond? Effective communication, monitoring (part tracking), process streamlining, and predictive analysis are all remedies for visibility concerns.
2. Talent Shortages and Leadership Concerns (inflation)
The manufacturing sector is no stranger to labor concerns, but over the last few years, talent shortages have become increasingly problematic. While once confined to workers, it has since permeated to business leaders as well. A survey conducted by Automotive Manufacturing Solutions found that around 35% of respondents cited labor as their most concerning challenge in regard to rising costs. Additional key findings include:
- 58% stated concern regarding training, upskilling, and education
- 56% identified specific skill shortages
- 48% expressed issues with new skills needed to keep up with changing automotive landscape
Many of these concerns have an impact on the talent shortages and leadership shortcomings, as specific skills needed to keep pace with the fact-paced auto sector are a must. This includes all levels, from suppliers and vehicle manufacturers to engineers, management, and key professionals throughout the supply chain.
3. The EV Transition
One of the more recent catalysts for change in the automotive supply chain is electric vehicles (EV). Over the next ten years, it's expected that the EV market will grow at a rate of 29%, with sales reaching $31.1 million. Electric vehicle share has steadily increased since 2017, with varying forecasts by region. By 2030, the market share of EVs in China and Europe will hover between 40-50%, with the United States just under 30%.
How does this impact the automotive supply chain? The increase in EVs means higher demand for particular components, like semiconductors and batteries. Both of which are in limited supply. This means heightened costs for raw materials, lack of availability, and inexperience managing these components in such large quantities in the automotive supply chain and supporting industries.
4. The Microchip Conundrum
The automotive supply chain has been fraught with many shortages, none of which has been more problematic than chip shortages. Around 2020, the demand for microchips all over the world skyrocketed. The pandemic and subsequent lockdown caused massive demand, with little to no supply. Work-from-home consumer electronics and emerging products (like EVs), all played a role in heightened demand.
Auto companies canceled orders during this time, but production eventually sped back up and there were simply no raw materials or semiconductors available. There were many more factors at play, but the pivot toward electric vehicles played a massive role.
Now, there might even be an oversupply, which presents new supply chain challenges.
5. Inventory Management (scarcity vs overstocking)
Overstocked inventories in automotive supply chains quite literally leave money on the table. Suppliers need to be vigilant about data analytics and communication. Throughout the entire supply chain, inventories need optimal visibility, shipment transactions require clear documentation, purchase orders should be accurate, and validation needs to be defined.
There are exceptional tools available for the entire supply chain so that data exchange is optimized so that logistics operators and transportation companies have clarity -- eliminating excess inventory and providing automotive suppliers with robust tools for supply chain transactions. These include elements such as:
- Just-in-time (JIT) management strategies that align production schedules with raw material orders to decrease waste and reduce inventory costs.
- Vendor managed inventory (VMI) is meant to increase the efficiency of inventory management and order fulfillment by synchronizing business goals and optimization efforts.
- Advanced Shipping Notifications (ASNs) are documents that offer detailed information regarding a pending delivery to maintain transparency regarding shipment progress.
6. A Move Toward Domestic Manufacturing
The United States plays a vital role in automotive manufacturing. While China absolutely dominates the world in terms of production, the U.S. also boasts some impressive stats.
- The United States is #2 in the world in terms of production in the automotive industry
- The U.S. makes up 12% of the total global market share
- They are the largest producer of commercial vehicles (even more than China)
So, what does this have to do with supply chains? Well, the U.S. has been steadily reducing its reliance on global supply chains, returning back to domestic production and limiting its reliance on China. This is due to a few factors, mainly geopolitical tensions, pandemic fallout, and even government incentives that pertain to certain components that are on the rise (Advanced Manufacturing Production Tax Credit 45X MPTC).
Why is this a supply chain issue? Well, it's technically not -- but it is a symptom of an issue. A lack of crisis planning and clear-cut support for potential global problems as we've seen in recent years leaves auto manufacturers with logistical headaches and expensive remedies. Many manufacturers lacked the processes and tools needed to ensure that their factories and critical supply chain components were prepared.
7. Inconsistent Sustainability Stances
Another issue facing the automotive industry in terms of the supply chain is varying sustainability prerogatives. The sector has shifted closer and closer to a greener, more environmentally conscious industry in light of societal trends and climate change concerns. There are also manufacturing and supplier requirements pertaining to environmental responsibility.
However, the automotive industry is a globalized machine. Each location has slightly different stances and requirements when it comes to sustainability. Depending on a company's own guidelines, this can cause a rift in the automotive supply chain.
The Automotive Supply Chain: Future Trends to Lookout For
As the automotive industry grapples with these supply chain issues, it is also embracing transformative technologies and strategies to adapt to the ever-changing landscape. The following section explores key trends and innovations that will play a pivotal role in shaping the future of the automotive supply chain:
Leveraging AI for Quality Control Systems
Artificial intelligence (AI) is increasingly being harnessed for quality control systems. Machine learning algorithms can analyze vast datasets from various stages of production, enabling the detection of defects and irregularities with remarkable precision. This not only ensures the highest quality components but also reduces waste and production costs.
Predicting Future Trends and Demand Forecasting
Advanced predictive analytics, powered by AI, are helping automotive companies anticipate future trends and demand. Accurate forecasting enables companies to proactively adjust their supply chain strategies, optimize inventory levels, and enhance production efficiency. Implementing collaborative forecasting software goes even further, reinforcing supplier relationships, optimizing production, creating transparent inventory levels, and providing a collaborative environment for information-sharing with suppliers and OEMs.
AI-Enabled Collaborative Robots (Cobots)
Collaborative robots, often referred to as cobots, are becoming integral in the manufacturing of automotive components. These AI-driven machines work alongside human workers, automating tasks like building processors and other parts. This not only improves efficiency but also ensures precision and consistency in production.
Optimized Scheduling for Improved Logistics Processes
The adoption of AI and data analytics for optimized scheduling is revolutionizing logistics in the automotive supply chain. Smart scheduling helps reduce transportation costs, minimize delays, and enhance overall supply chain efficiency. EDI offers real-time tracking of part orders and components throughout the supply chain. Learn more about this critical visibility tool below.
EDI as a Service to Future-Proof the Supply Chain
Embracing Electronic Data Interchange (EDI) as a service is becoming a cornerstone of future-proofing the automotive supply chain, whether in-house or outsourced. By digitizing data exchange, companies can eliminate errors, improve cash flow, and significantly reduce manual effort in their supply chain operations.
Updating EDI software and making improvements to traditional EDI infrastructure to meet changing demands is a must for supply chain leadership. Here are a few quick tips to ensure you’re on the right path:
- Make sure you’re industry-compliant with standards like ANSI X12, EDIFACT, and AIAG.
- Digitize the process with electronic invoicing (e-invoicing) and electronic payments to streamline financial transactions with suppliers and customers.
- Leverage data analytics to gain actionable insights from EDI data that you can utilize in demand forecasting, performance analysis, and supply chain optimization.
These future trends and technologies are not just areas for exploration; they are becoming critical components of the automotive supply chain's evolution. By leveraging these innovations, the industry can mitigate current challenges and ensure resilience in the face of future disruptions.
Are you interested in learning more about EDI in the automotive supply chain? Check out our webinar all about how companies can digitize their supply chain with modern solutions.
