Impact of Global Events on the Automotive Supply Chain
Posted on November 27, 2024
The global automotive industry has always been a complex network of suppliers, manufacturers, and distributors. However, recent global events have caused significant disruptions, highlighting the industry's vulnerabilities.
These challenges have provided valuable lessons in building a more resilient supply chain. This blog post will explore the insights and lessons learned from these disruptions in the supply chain automotive industry.
Understanding Global Supply Chain
Many car manufacturers outsource parts of their production to different companies around the world. This helps them save money and reduce risks. Big car companies, known as original equipment manufacturers (OEMs), often buy or partner with other companies to make their supply chains stronger.
The global supply chain is still feeling the effects of the COVID-19 pandemic. Transportation, especially shipping, is a key part of the supply chain that is struggling. In the U.S., outside of the busy ports of Los Angeles and Long Beach, many ships have been delayed for days.
Because of these delays, the travel time from China to the U.S. has increased by 75%, now taking 71 days, and the cost per container has gone up to almost $20,000. This is a big problem for car manufacturers who rely on getting parts just in time to keep their production lines moving smoothly.
Supply Chain in the Automotive Industry
In automotive manufacturing, supply chain disruptions are a major concern. These disruptions can be unexpected events or challenges that affect the production and distribution of vehicles.
The automotive sector depends on a network of suppliers, manufacturers, and logistics partners to deliver parts and components on time. When something goes wrong in this complex supply chain, it can cause delays, increase costs, and lead to unhappy customers.
That's why it's so important for the automotive industry to understand and manage these disruptions effectively. By doing so, businesses can stay competitive and continue to deliver high-quality vehicles to customers around the world.
Global Supply Chain Issues on Canadian Auto Production
Here's a look at some major global supply chain issues and how they are affecting the auto industry in Canada and North America.
1. The COVID-19 Pandemic
While the COVID-19 pandemic may be over, its effects on global supply chains are still impacting the Canadian auto industry and manufacturing in general. Lockdowns disrupted the flow of raw materials, causing backlogs that continue to affect car production in Canada.
Additionally, global inflation, which followed the economic shutdowns during the pandemic, has significantly increased the cost of producing vehicles in Canada.
2. Semiconductor Shortages
The demand for electric vehicles is skyrocketing, with over 35% of all vehicles in North America expected to be EVs by 2030. This has caused a huge increase in the need for specific EV parts, especially semiconductors.
The ongoing semiconductor shortage is greatly impacting the global automotive industry. It's so severe that some Canadian automakers have had to slow down production and cancel shifts for some workers.
3. Reliance on International Suppliers
The Canadian auto industry depends a lot on overseas suppliers for key parts and raw materials. This helps make the industry more efficient but also makes it more vulnerable to problems like geopolitical tensions and natural disasters.
For example, current tensions in the Middle East have made shipping more dangerous and expensive. This disruption has caused significant production delays and bottlenecks in Canadian assembly plants.
4. Tariffs and Trade Uncertainties
The Canadian auto industry depends a lot on international trade. This makes it vulnerable to changes in tariffs and global trade policies. Tariffs and trade disputes can raise the cost of making cars, making Canadian products less competitive.
For example, uncertainty about trade with important partners like the US and Mexico due to political changes makes it hard for Canadian car makers to plan their supply chains.
5. Environmental Regulations
Environmental rules are a big deal in the automotive industry, especially in Canada. There's a lot of pressure on car makers to use eco-friendly ways to make cars and cut down on how much they pollute. But following the strict rules set by the government can make it cost more to build cars right away.
6. Lack of Supply Chain Visibility
Vehicles are made up of around 30,000 parts, relying on supply chains that assemble components as needed for production. This setup can lead to problems if there are blind spots in the process, such as inventory shortages or delays, affecting the entire procurement process.
The automotive industry, heavily reliant on 'just-in-time' operations, is particularly concerned about visibility, with 81% expressing worries compared to 70% in other sectors.
7. Environmental Concerns
Environmental issues have been a major focus in the automotive industry since Volkswagen's diesel emissions scandal in 2015. Consumer worries and stricter emissions rules have pushed green initiatives to the forefront for manufacturers and their partners.
During lockdowns, emissions dropped by as much as 7%, and electric vehicle (EV) registrations shot up by 185%. These trends highlight the industry's need to prioritize environmental concerns.
8. Collaborative Relationships
The automotive industry relies on extensive global supply chains, but these long distances also pose risks to productive partnerships.
Problems like inefficient communication and differing standards and software can make it hard to work together effectively. These issues can lead to misunderstandings that prevent partnerships from working well or even cause them to fail.
9. Increasing Bureaucracy
Changes stemming from Brexit have further complicated the already intricate European automotive supply chain.
Complex customs procedures have:
- extended travel times
- increased the risk of delays
- reduced overall efficiency.
These challenges are diminishing Europe's previously vibrant automotive sector, making it less attractive for international trade and investment.
10. Globalization and Supply Chain Complexity
Automotive manufacturing supply chains face a major challenge in their complexity. Modern vehicles are made up of thousands of parts from many suppliers around the globe. While globalization brings cost savings and access to advanced technologies, it also brings risks.
11. Geopolitical Instability
Political tensions and trade disputes can greatly affect automotive supply chains. Tariffs, trade restrictions, and instability in major manufacturing regions can disrupt the supply of parts and materials.
For example, during the US-China trade conflict, higher tariffs on automotive components forced manufacturers to reconsider their supply chain strategies and find new suppliers, sometimes at increased expenses.
12. Natural Disasters and Environmental Factors
Natural disasters like earthquakes, floods, and tsunamis can severely impact automotive supply chains. For instance, the 2011 earthquake and tsunami in Japan disrupted the supply of critical automotive parts, causing production stoppages globally.
Moreover, environmental changes such as climate shifts are making these events more frequent and intense, posing an increasing risk to supply chain reliability.
13. Logistical Challenges
Logistics are crucial for the automotive supply chain, involving the transport of parts and finished vehicles over long distances.
However, issues like port congestion, shipping delays, and high transportation costs can greatly impact the industry. The use of just-in-time (JIT) inventory systems makes these challenges even worse, as even small delays can disrupt production schedules.
14. Raw Material Shortages
The automotive industry needs a steady supply of raw materials like steel, aluminum, and rare earth metals. However, shortages of these materials can disrupt production.
These shortages are caused by increased demand from other industries, geopolitical tensions in mining areas, and environmental regulations that limit extraction activities.
15. Technological Advancements and Integration
The fast development of new technologies in automotive manufacturing, like electric vehicles (EVs) and self-driving technologies, brings new supply chain challenges.
Switching to EVs, for example, needs new supply chains for batteries and related parts. Integrating these new technologies with existing manufacturing processes and supply chains can be complex and expensive.
16. Labor Shortages and Skills Gap
The automotive industry is struggling with labor shortages and a skills gap. There's a high demand for skilled workers in manufacturing, logistics, and technology, but not enough people to fill these roles.
This problem is made worse by an aging workforce and the need for new skills to handle advanced manufacturing technologies and digital supply chain tools.
17. Regulatory Compliance and Sustainability
Automotive manufacturers must follow a complex set of rules regarding safety, emissions, and sustainability. To comply, they often need to change their manufacturing processes and supply chains.
There is also growing pressure to adopt sustainable practices and reduce environmental impact. This means finding eco-friendly materials and cutting carbon emissions, which can be quite challenging.
Effects of Supply Chain Disruptions in the Automotive Industry
These impacts can be broadly categorized into several key areas:
1. Production Slowdowns
Interruptions in the production process can result in delays, such as receiving essential parts and components from suppliers later than expected. These delays can slow down assembly lines, impact production rates, and cause deadlines to be missed.
2. Rising Costs
Disruptions often lead to higher expenses. Rushing shipments or finding alternative suppliers can be more costly. Additionally, maintaining larger reserves of products to reduce risks requires more capital and increases storage expenses.
3. Compromised Quality
When manufacturers must change suppliers or use alternative materials, the quality of components may suffer. This can lead to quality control problems and potential recalls, harming a company’s reputation and causing significant financial losses.
4. Customer Delays
Delays in production and delivery can result in customers receiving their vehicles later than expected. This can lead to dissatisfaction, affecting brand loyalty and future sales.
5. Increased Operational Complexity
Managing risks in the supply chain often involves introducing more complexities, such as broadening the supplier pool or maintaining backup strategies. Building a sustainable automotive supply chain means dealing with these additional complexities.
6. Competitive Disadvantage
Continuous disruptions in production can affect a company’s competitiveness. Rivals with stronger and more streamlined operations may gain a competitive edge.
7. Financial Consequences
Disruptions in the supply chain can lead to substantial financial consequences, such as decreased earnings, higher operational costs, and potential legal expenses in the case of quality or safety issues.
8. Compliance Challenges
Regulatory changes, such as new environmental requirements or trade regulations, can result from disruptions. Adapting to these changes might require significant shifts in operations and product offerings.
Key Solutions to Overcome Supply Chain Disruptions
To tackle these challenges in the global supply chain, automotive manufacturers can implement several strategies:
1. Diversified Supplier Base
To reduce reliance on a single supplier, automotive companies can expand their network of component and material providers. By working with multiple suppliers for critical elements, they create backup sources in case of issues.
2. Robust Risk Management
Developing strong risk management strategies is crucial. This includes assessing potential threats, creating backup plans, and regularly reviewing vulnerabilities. Identifying risks early and having response measures ready enables companies to quickly address unexpected challenges.
3. Leveraging Technology and Data
Modern technologies like data analytics, IoT (Internet of Things), and AI provide real-time insights into the production and distribution process. This data-driven approach improves tracking of inventory, production schedules, and supplier performance.
4. Technology Investment
Embracing advanced technologies like IoT, blockchain, and AI can improve supply chain visibility and efficiency. These technologies provide real-time data, helping manufacturers quickly identify and solve problems.
5. Resilient Supply Chains
Designing flexible supply chains that can adapt swiftly to disruptions is crucial. This includes maintaining safety stock, using flexible manufacturing processes, and creating contingency plans for different scenarios.
6. Sustainability Practices
Integrating sustainability into supply chain strategies helps meet regulations and appeal to eco-conscious consumers. This involves using sustainable materials, optimizing transport routes for fewer emissions, and implementing recycling initiatives.
7. Collaborative Partnerships
Building strong relationships with suppliers and logistics partners enhances supply chain resilience. Collaborative partnerships improve communication, enable joint problem-solving, and coordinate responses to disruptions.
8. Skill Development
Investing in workforce training and development addresses labor shortages and skills gaps. This includes training current employees, attracting new talent, and collaborating with educational institutions to develop relevant skills.
9. Effective Risk Management
Implementing strong risk management practices helps identify and mitigate supply chain risks. This involves regular risk assessments, monitoring geopolitical factors, and staying updated on environmental changes.
Statistics on Losses in the Automotive Supply Chain
The disruption in the automotive supply chain has had significant impacts in recent years. Auto manufacturers have faced hundreds of billions of dollars in losses due to decreased consumer demand and supply chain delays.
Issues like low inventory, container shortages, port delays, and extended lead times for parts have plagued the industry, affecting 70% of major car manufacturers since 2020.
During the height of the pandemic, semiconductor lead times stretched to 150 days, far exceeding the usual 30-60 days.
In 2021 alone, supply chain complications led to production losses estimated at 7.7 million vehicles. The total losses in the automotive supply chain are expected to reach trillions of dollars once the full impact is assessed.
Timeline for Recovery in the Global Vehicle Supply Chain
Experts were hopeful at the start of the year as many supply chain issues seemed to be resolved. Domestic production of parts and semiconductors is helping, but full capacity at manufacturing plants may take 2-4 more years.
Despite supply catching up, global demand for new vehicles has slowed amid rising interest rates, high vehicle prices, and economic uncertainties.
The complex nature of the auto supply chain makes it hard to predict a full return to pre-pandemic levels, but recent challenges have prompted improvements for future stability.
Secure Your Next Vehicle Despite Global Supply Uncertainties
Global events have disrupted the automotive supply chain, leading to delays in production, higher costs, and difficulties meeting consumer demand. While steps are being taken to address these challenges, uncertainty remains about when the industry will fully return to pre-pandemic levels.
See how CarHub North York Chrysler can streamline your car ownership with expert insights and exceptional customer service. Contact us today and drive happy with the car of your dreams.