4 Trends Emerging in the Auto Industry Supply Chain

Supply chain disruptions, inflation and labor shortages have left a huge impression on the automotive industry since the pandemic.

What is happening in the industry today?

Does it have adequate supply of semiconductors and other electronic components? Has production in manufacturing plants been restored to pre-pandemic levels? More importantly, do manufacturers have a mechanism in place to address supply disruptions in the future?

Today, leading automotive manufacturers are focusing on increasing the production of electric, hybrid and autonomous vehicles.

Additionally, vehicle interiors increasingly feature sophisticated features such as advanced driver assistance systems, connected car systems and other software-based features.

All this is set to further increase the demand for electronic components such as semiconductors.

Although supply pressures have eased across industries in recent times, as suggested by the GEP global supply chain volatility index, carmakers know that disruptions are by no means over and can occur at any time again.

With supply shortages taking a toll on production, they must have a clear plan to deal with such disruptions in the future. In this plan, they need to map their supply chains and identify lower-tier suppliers. In some cases, they may also need to work directly with lower-tier suppliers.

What to Expect in the Auto Industry Supply Chain

Here are 4 emerging trends:

1. Nearshoring:

Several carmakers plan to lower the dependence on a few Asian countries by expanding their supplier base in regions located closer to production. Leading European and US-based OEMs are exploring the feasibility of sourcing locally as well as nearshoring in countries such as Mexico, India and Vietnam.

For example, Ford has collaborated with U.S. semiconductor chip manufacturer GlobalFoundries to reduce its dependence on overseas suppliers. Likewise, European OEMs are exploring regions in Eastern Europe for nearshoring.

With a nearshoring strategy, manufacturers can nearly eliminate supply shortages as well as lower the lead time for key components.

2. Use of Alternative Components:

Automotive OEMs are looking to mitigate supply risks by identifying and pre-qualifying alternate components for production. Tesla, for example, adopted this strategy when most carmakers were struggling with chip shortages. By using alternate electronic components, the company was able to maintain its production levels during this time. Additionally, automakers are increasingly investing in research and development of alternative materials and components that can mitigate the impact of future disruptions.

3. Demand Forecasting:

Automakers are increasingly investing in advanced technologies such as artificial intelligence (AI) to accurately predict customer demand, which in turn helps to determine the need for raw materials and components. When they have a near accurate estimate of demand, they can adjust their supply plan accordingly. For components that have a long lead time, they can start early and plan supply well in advance.

Additionally, with AI-powered technology, they can have real-time, end-to-end supply chain visibility. This can help them spot potential supply bottlenecks and take corrective action.

4. Supplier Collaboration and Management:

Another key agenda for automotive OEMs is to build stronger ties with suppliers, especially those beyond Tier 1 suppliers. This is vital as they do not even know their suppliers’ suppliers in many cases. Also, lower-tier suppliers are often under pressure to meet cost and delivery targets. Amid growing uncertainty, there is a need for OEMs to enhance cooperation and work closely with these suppliers.

Also Read: 6 Ways to Optimize the Automotive Supply Chain

Conclusion

In the rapidly evolving business landscape, automakers need to come up with fresh and innovative strategies to stay afloat. A key priority in this endeavor is to streamline supply chain operations. Not surprisingly, the auto industry supply chain is in the middle of a major transformation.

In addition to the above four trends, there is likely to be increased flexibility in vehicle design, with product design and engineering teams playing a more active role and engaging in comprehensive risk assessments to make flexible design arrangements and rapid product changes.

Here’s how GEP can help optimize your automotive supply chain.