The need to reinforce supply chains for resiliency.
With 2020 and 2021 recorded in history as the years the pandemic brought the world to a screeching halt, might very well go down as the year of recovery. Industries around the world are preparing to bounce back in force, even as they battle subsequent lockdowns, unexpected natural disasters and severe supply chain issues.
For the global automotive sector, however, the problem is compounded by the fact that the industry itself is going through an overhaul. Drivetrains are changing to electric; automobiles are being built with software at their core, and consumer behaviour towards purchasing automobiles is changing drastically.
The just-in-time and just-in-sequence industry has been dealt a body blow over the last year and a half as shortages in components forced assembly lines to move at a snail's pace. For the automobile industry, the need to reign in scattered component production capabilities and shift the epicentre of innovation back to home ground is paramount.
Running short on chips
Chip capacity isn't likely to catch up with demand in the short term in the automotive industry.
The Society of Motor Manufacturers and Traders (SMMT) shows a decline of 99, 211 cars (32.4%) in the first three months of 2022 due to the semiconductor shortage plaguing the industry.
This is primarily because of the continuously increasing volume and sophistication levels of the chips needed to power new technologies such as advanced driver-assistance systems in commercial light and heavy vehicles and autonomous systems in consumer vehicles.
As technology changes from chips to the anticipated systems on chips (SoCs) and automobiles are built from the ground up with software, OEM, tier-one suppliers and semiconductor suppliers need to work together to help align the goals of all parties. This could mean paying more for chips when capacities are lower in order to expedite their production. It could also mean replacing back-ordered components with chips that have more memory or that can deliver more features.
Securing electric cell production
With electric vehicles (EVs) heralded to be the cleaner, more sustainable way to commute tomorrow, the battery cell is fast becoming the heart of the automotive revolution. However, limited capacities, spread too thinly across the globe, are causing a shortage of battery cells for waiting production lines. To overcome this shortage, top automobile manufacturers are investing heavily in local gigafactories that build automotive cells from the ground up. Others are teaming up with battery manufacturers to source components to assemble on site.
The cybersecurity factor
A by-product of a connected, always-on, and smart driving experience is the growing concern regarding how accessible this data is. Automobiles are now set up for over-the-air updates, vehicle-to-vehicle communication and vehicle-to-infrastructure (V2I) communication, and OEMs must ensure this accessibility is limited to themselves and their customers. The cost factor is huge, and initially, we can expect to see cybersecurity protocols being integrated into commercial vehicles. But it will be a few years before we see this level of protection in consumer vehicles.
It's getting electric
One section of the sector that is still holding relatively steady is electric vehicles. The pressing need to address climate change has driven several countries to announce friendly policies and even pledge a full shift to electric vehicles over the next few decades. On the other hand, the electric offerings of many manufacturers are starting to gain market traction. The pandemic barely dented demand as global electric vehicle sales between 2020 and 2021 grew by 60%. The pivot to electric transportation is well underway and is redefining automotive supply chains by the day.
Current battery technology necessitates the constant transport of components and raw materials from all over the world to multiple facilities and gigafactories.
As the infrastructure for both personal and mass-transport electric vehicles improves, the need for highly efficient supply chains and logistics networks also grows.
Roadblocks on the recovery path
The industry's recovery is also being hampered by logistics constraints all over the world. Supply chains usually can shake off unusual or unexpected events like the 6-day Suez Canal crisis of March 2021 or the shutdown of the Yantian Port in South China. However, the pandemic has rendered the entire industry very vulnerable to these hits, and the effects are being felt across the line. As the world emerges from the economic paralysis of Covid-19, ports, customs and warehouses are struggling to handle the surge in deliveries for automakers rushing to replenish stocks. A lack of visibility into transit times has left both suppliers and customers guessing about transport schedules for components.
The race to resiliency is on
However, optimism about a supercharged comeback is high. Companies are pivoting towards a post-crisis growth boom which is already seeing demand outstripping supply. Resilience is the name of the game right now and will dictate plans for the foreseeable future.
The companies that invest heavily in making their supply chains more robust are the ones that are likely to thrive. Automakers also need to focus on decreasing complexities of their businesses and aggressively work on streamlining their workflows. End-to-end logistics solutions with fewer links in the chain are one way to reduce lead times and get greater control and flexibility of transportation.
Going digital with planning, paperwork, and monitoring and managing logistics is the only way forward to drive efficiencies, cut costs and get greater visibility into supply chains.
The global auto industry has put a very difficult year behind them, and it is now time to transform themselves into leaner, meaner, resilient businesses that can survive and thrive.
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