The recent pandemic has caused a series of challenges across multiple industries. One of the worst-hit industries is the auto industry, which is dealing with an acute shortage of chips. This shortage has caused several companies to scale down their production, lower their inventories, and in some cases, shut down operations. According to industry players, the chip shortage has caused automakers to cut back on the production of more than a million vehicles, causing a projected loss of $110 billion.
Despite the challenges witnessed in the industry, some automakers see this as an opportunity to reorganize their production to emerge even stronger. According to AutoForecast Solutions, popular brands such as Jeep, Chrysler, Hyundai, and Nissan are among the hardest hit. Read on to learn some of the steps automakers are taking to cushion themselves against the current shortage.
Dealing with Chip Scarcity
To continue, production manufacturers have decided to review their operation modules to focus more on the supply chain and monitor suppliers such as Parts Procurement. Major industry players have reached out to authorities across the globe to help address this challenge and help increase supply chain transparency and data sharing. The U.S. Senate recently passed a bill to allocate $50 billion to address the shortage.
According to Columbia Threadneedle, the current shortage can also be partly blamed on automakers. This is mainly because most auto manufacturers canceled their semiconductor orders at the outset of the pandemic. Although they expected demand for cars to go down, the opposite occurred. The increased demand and limited supply have come at a time when chips are essential to automotive supply, and a limited supply could derail production.
As stated before, several companies have had to cut back on production while others had to discontinue the production of some models. However, there is an upside to the current shortage of semiconductors for dealers and automakers. The price of vehicles has skyrocketed with few incentives and low discounts. This trend has caused profit margins for automakers and dealers to rise.
Short-Term Strategies
The current shortage of semiconductors is yet to be resolved. This is because producing a semiconductor for well-established products in the manufacturing line can take up to four months. This timeframe can extend to six months if you move the product to a different site. On the other hand, switching to a different manufacturer could delay production by almost a year. This is because the chip’s design requires manufacturers to make changes to the manufacturing process.
According to research, chip production will not be able to meet the current demand. This is mainly because of the ever-increasing volume and sophistication level of chips needed in auto production. As a short-term measure, leading manufacturers have dedicated war rooms to combine intelligence from supply and demand for better transparency. For example, there’s the use of automatically generated dashboards that collect data from multiple sources, including the company’s supply chain and semiconductor supplier’s commitment. The purpose is to provide a clear line of internal communication between suppliers and customers.
The production and supply of chips have yet to resume their flow. However, automakers are gearing for tough times ahead by streamlining communication between them and their semiconductor suppliers.
