The soaring popularity of Electric Vehicles (EVs) has changed the face of the automotive industry forever. Recent EV sales figures in Europe indicated a 40% increase over the last five months. However, manufacturers face significant challenges as they strive to produce vehicles rapidly in response to the spike in demand. Panasonic recently recognized the need for four more EV battery plants if supply is to meet demand; meanwhile, Jaguar Land Rover (JLR) has outlined plans to create an exclusively electric production plant by 2025.
As vehicle innovation accelerates, companies are modernizing their supply chains to keep pace. Automotive supply chains are incredibly complex, and EVs only add to their intricacy. In the past, isolated decision-making, lack of connectivity, and poor data hindered supply networks. With geopolitical conflicts continuing to squeeze supply, many manufacturers are adopting technology that facilitates proactivity. The automotive industry is entering new territory, and companies should consider adapting their supply networks to align with it.
Rerouting: ensure complexity doesn’t lead to chaos
Unprecedented demand shifts extend from manufacturing and charging stations to software and firmware updates. Chaotic swings in automotive supply and demand can risk customer loyalty. Customers will head elsewhere if vehicles aren’t readily available, so consistent supply is non-negotiable.
Poor visibility into inventory across suppliers means poor visibility of supply risk. A single issue among thousands of suppliers over multiple tiers can make even the most efficient production lines grind to a halt. Due to the complexity of new vehicles and the myriad of required parts, manufacturers and suppliers often turn to overstocking as a solution. This can exacerbate shortages and tie up capital that may be put to better use elsewhere.
With a proliferation of configuration options, a shift from make-to-stock to make-to-order, and the surge in new suppliers for novel technologies, the complexity only grows. Disruptions now span demand and supply, requiring manufacturers to monitor all upstream and downstream stakeholders, from systems, components, and materials to dealers, customers, and recyclers. And be agile to build new supplier relationships when necessary. Manufacturers also require visibility into the nth-tier of supply to ensure this further complexity doesn’t equate to delays.
No easy wins when it comes to shortages
Shortages of semiconductors and metals for EV batteries continue to plague the automotive industry. In 2021 alone, the industry lost $210 billion in revenue due to chip shortages slowing or stopping vehicle production altogether. And when the industry only uses 5-10% of semiconductors, with most going to consumer electronics, automotive manufacturers often find themselves at the back of the queue. Some even have to choose which features to include on vehicles to try and keep up with demand, leading to costly retrofits to give customers the functionality they want. With no foreseeable end to the shortages, leaders seek creative ways to bolster their supply chains and meet demand.
Shortages aren’t fully solved by finding new suppliers and creating an extended supply chain. More suppliers equal more risk, and every supply chain link should be closely monitored to handle issues proactively. Some have turned to nearshoring to produce parts locally to mitigate these risks. However, a lack of raw materials can cause manufacturers to continue to source components from further afield – and the complexity continues. Ideally, short-term fixes will be combined with longer-term planning, allowing automotive leaders to effectively balance suppliers and strengthen stock.
Fueling up for the road ahead
Connecting the dots between a wealth of suppliers and stakeholders may seem challenging. But it’s a smart move for manufacturers looking to create collaborative, ‘future-proofed’ supply chains. Crucially, a connected supply chain transforms the service the end-user receives. Data-driven decisions reduce lead times and help leaders manage and monitor stock effectively.
Automotive supply chains previously focused on three fundamental tenets: globalization, outsourcing, and cost-optimization. This is no longer sufficient as cars increase in intelligence and the case for a connected supply chain grows even stronger. Geopolitical instability and spikes in demand continue to impact the heart of supply and demand, and short-term solutions could leave leaders struggling further down the line if more intrinsic issues aren’t addressed. The automotive supply chain needs a revolution that puts visibility at the center of the matrix. With all this in place, automotive manufacturers will be set for success as the industry moves towards electric vehicles for good.
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