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  • Writer's pictureJeremy Conradie.

Automotive Supply Chains Begin Long Road To Recovery

There are signs of recovery in the embattled automotive supply chain, although a return to something similar to pre-pandemic conditions is still a few years away.

Carmakers were among the hardest hit by disruptions in supplies of key raw materials and components over the last three years.

This took the form of cancelled orders for microprocessors in response to a slump in auto sales in the early months of the COVID-19 pandemic. When demand for product began unexpectedly to surge later in the year, it was too late to call back those orders.

This resulted in severe shortages of both new and used cars in the marketplace. In response to the lack of chips, automakers were forced to cut production of new vehicles by an estimated 10.5 million units in 2021, and another 3.6 million in 2022.

Despite a generally pessimistic outlook for the auto industry extending well into 2023, there are some signs of “stabilization” across multiple commodity groups in the industry’s supply chain, says Richard Barnett, chief marketing officer with Supplyframe which is an electronics sourcing company which provides digital search, e-commerce, sourcing, and intelligence-based solutions that create a more connected, resilient, and efficient electronics value chain. He sees slight improvements in supplies of both passive and active microchips, as well as power control systems and other major analog components.

Barnett describes industry’s attempts to cope with the persistent shortages as nearly completely random guesses, whereby manufacturers succeed in obtaining one type of material while suffering a shortfall in another.

The problem, he says, lies in an inability to “look under the hood” of their supply chains — in other words, a lack of visibility by original equipment manufacturers of the complete bill of materials. That’s why their outlook for recovery seems so erratic.

The pattern is going to continue to play out into the first half of 2023,"

Often they would only learn about parts shortages because they weren’t getting shipment confirmations from suppliers — even those that were co-located with manufacturing locations. They were getting surprised two to three weeks out, and learning that there was a six-month lead time.” - Richard Barnett, Chief Marketing Officer, Supplyframe

Over time, the OEMs began reconfiguring their supply strategies, in some cases reaching out to secondary suppliers or buying up as many parts on the open market as possible. But they have continued to suffer disruptions caused by ostensibly minor items over which they lack line of sight. Ford Motor Co. warned investors that it would be incurring an extra $1 billion in supply chain costs during the third quarter of this year, and other major automakers are likely to be eating similar costs.

That said, the overall lead time for microprocessors has “improved broadly” in recent months, Barnett says. Real recovery for automotive supply chains is still three to five years down the road though, Barnett predicts. And investments in beefing up supply won’t begin to impact production significantly until 2023 at the earliest. Meanwhile, manufacturers will need to continue retooling production lines to accommodate the making of more EVs, which are expected to dominate new-car sales within a matter of years. They will be helped by a push to expand domestic chip production, as well as standardize platform design among multiple vehicle models to reduce sourcing and assembly complexity.

Every EV program allows OEMs to get their act together around standardization and reuse. It allows them to get ahead of the problem by doing more long-term agreements, direct sourcing and collaboration with semiconductor suppliers than ever before.” - Richard Barnett

Source: Supplychainbrain

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