Supply Chain Challenges in the Automotive Industry!

Automotive Industry

When it comes to global manufacturing and economic activity, the automotive industry is a huge player. There are a number of supply chains that work together in this industry to make it what it is.

In fact, these supply chains span continents and involve a number of suppliers, manufacturers, and logistics providers. Due to the scale of these networks, they naturally encounter challenges, including the likes of semiconductor shortages and geopolitical tensions.

Whether it’s getting hold of bulk car wash chemicals or car parts, there are many hurdles to be encountered in automotive supply chains. These hurdles require innovative solutions and strategic resilience, which are explored in further detail below.  

Semiconductor Shortages

Perhaps one of the biggest challenges of the automotive supply chain is the current semiconductor shortage. These components may be tiny, but they’re crucial facets of modern vehicles.

Whether it’s the engine control units or the advanced driver assistance systems (ADAS), these small components are used in various elements. Unfortunately, this shortage was driven by the pandemic, in which production was halted, and this then resulted in a surge in demand for consumer electronics.

As a result, automakers then had no choice but to scale back production. From this, it’s clear to see just how much automotive manufacturers rely on the small number of semiconductor manufacturers that are primarily found in Asia.

Mitigating these risks in the future means diversifying the supplier base and investing in the development of semiconductor production capabilities in individual regions. 

Global Pandemic Impact

As briefly mentioned above, supply chains took a huge hit from the COVID-19 pandemic, especially in the automotive industry. In fact, the initial outbreak resulted in factory shutdowns, disrupted logistics, and a sudden drop in vehicle demand.

During this time, the world had to adopt a new normal, and supply chains were no exception to this huge shift. Fluctuating demands led to transportation bottlenecks, and this meant that companies were required to navigate their way through a maze of regulations, health protocols, and numerous recovery timelines across varying regions.

Due to this, the supply chain had to become more agile and adaptable, and this encouraged a number of firms to revisit their strategies and invest in more robust contingency planning. 

Geopolitical Tensions

We’ve also briefly touched on the geopolitical tensions that are affecting the automotive supply chain. For instance, the US and China have been in the midst of a trade war, which has led to tariffs and trade barriers that complicate the flow of goods.

Meanwhile, a number of regions are experiencing political instability, and it’s these regions that are critical to raw material supplies like rare earth metals that are required for electric vehicle batteries. Naturally, this can disrupt production schedules and result in additional costs.

In order to address these issues, reshoring, nearshoring, and forming strategic alliances with suppliers in politically stable regions are just some of the strategies that companies are adopting. 

Logistics and Transportation Issues

Last but not least, the automotive industry wouldn’t function without just-in-time (JIT) manufacturing. As suggested by the name, this refers to when parts are delivered when they’re required during the production process.

Although this boosts efficiency and reduces inventory costs, it makes supply chains much more vulnerable to disruptions. With challenges such as port congestion, container shortages, and labor strikes, these disruptions are only becoming more common.

The smallest delays can ripple through the entire supply chain, and this can result in halts in production and significant financial losses. Advanced logistics technologies are the way forward to combat these issues and enhance traceability within the supply chain. 

Article and permission to publish here provided by Matt Gregory. Originally written for Supply Chain Game Changer and published on June 12, 2024.

Cover image provided by Matt Gregory.