The pendulum between boom and bust in the supply chain world continues to swing at an increasingly unpredictable pace. The shipper-driven market of 2020 was quickly followed by a spell of provider leverage in 2021, with yet another freight slowdown in 2022.
For lower cost, smaller freight, like consumer packaged goods and food & beverage, these swings, while disruptive, are usually quick to correct themselves and without long-lasting consequences.
But for the world of process manufacturing, specifically automotive (which toes the line of shutdowns with just-in-time manufacturing), the continual unpredictability of market conditions has increased the risk factor of supply chain management past the point of comfort for many, leading to a string of changes in 2023 and beyond – and there are three questions supply chain leaders should consider.
In 2022, the United States reached a critical milestone in the ongoing trial of electric vehicles. Finally surpassing 5% of overall sales, the generally regarded tipping point of new technology adoption, EVs are now poised to comprise 25% of automotive sales in the US and overtake diesel/gasoline-powered vehicles in Europe by 2025.
While it’s a major moment in the world’s fight against climate change, component manufacturing for EVs won’t necessarily seamlessly slot into the normal production patterns for combustion-powered vehicles, causing some uncertainty in the way automotive manufacturers will need to look at their supply chain.
In fact, a production shortfall in 2022 meant major changes at a leading EV manufacturer, sending shockwaves through the industry and keeping supply chain at the forefront. While other supply lines within the automotive industry have rebounded, questions remain about component manufacturing for EVs, whose suppliers are more varied, and a miss could result in missing a sale or a failed conversion.
As manufacturers move into 2023, supplier diversity and supply chain visibility are two crucial components of the EV manufacturing process that will need to be vigilantly monitored and managed to ensure success. The 5% EV inflection point marks a shift in the automotive industry and manufacturers will need to adapt quickly and efficiently to keep up with the growing demand for electric vehicles. This means ensuring a reliable supply of components and being able to quickly adjust to changes in the market and production shortages. As the market for electric vehicles continues to grow, manufacturers will need to be proactive in addressing these challenges to stay ahead of the curve and capitalize on the opportunities presented by the exponential growth in the EV market.
On the other side of the equation, will continued supply chain disruptions within the automotive industry dictate consumer behavior and potentially slow the adoption of electric vehicles? One automotive manufacturer is currently seeing wait times for hybrid/EV vehicles of 2+ years, while their comparable gas-powered vehicles are only 8-12 months out. This transitional period will continue to spread resources thin across an increasingly diversified supply chain and could lead to a longer window to transition fully to EVs.
Leaner operating practices of automotive manufacturers were created to minimize idle inventory and reduce carrying costs, culminating in the advent of just-in-time manufacturing. This created razor-thin delivery windows for production components into an assembly plant and the creation of the proverbial “Golden Screw” – a component whose absence could put the entire production in jeopardy of a temporary shutdown.
Benefits of just-in-time manufacturing included lowered operating costs, storage fees and improved assembly efficiency. But when production lines experienced a late delivery or a short-filled order, shutdowns quickly turned into hundreds of thousands in expenses.
To combat this, the automotive industry became accustomed to taking advantage of modal flexibility. If a shipment of doors was stranded a thousand miles away, there would be no problem opting for team expedited delivery, or even shipping by air, since the cost of a shutdown would quickly surpass the cost of the expedite.
This pattern was put on trial in 2021 as there was simply no capacity for expedites, regardless of how much money automotive manufacturers could offer.
When the market returned to relative normalcy throughout 2022, automotive manufacturers began questioning their supply chain operations – was just-in-time a resilient model?
As we transition into a very uncertain future in 2023, economic headwinds and buying signals seem to indicate lower demand for automotive manufacturers. For some, this is a welcome way to ease back into traditional just-in-time manufacturing, but others who know that this softness will be short-term will use it as an opportunity to critically evaluate what their business operations will look like in the future.
If the current state of just-in-time manufacturing is tossed aside by automotive manufacturers, and I truly believe that it should be, what replaces it? That’s a complicated question with a unique answer for every automotive brand out there. But if there’s one thing that will be a part of it, at least for North American supply chains, it’s nearshoring.
Regional hubs, or bringing component manufacturing facilities to customers, create diversity within your supply chain (sidestepping regional issues), reduce lead time to manufacturing, and help service recalls with greater precision. Alongside this, however, come higher production costs, infrastructure investment requirements, and an increase in volume in specific corridors.
There are a lot of advantages to at least shifting some production to Mexico and even stateside. It allows for greater control over production processes and quality, as well as the ability to quickly respond to market changes and consumer demands. If a disruption or bottleneck occurs in Asia, being able to flex production to other regions creates a safety net that keeps inventory moving.
Companies will need to carefully consider the costs and logistics challenges involved in developing new manufacturing facilities and infrastructure, as well as potential issues related to labor and regulations. With so much infrastructure in one part of the world, a manufacturing revolution within the automotive industry could potentially rewrite trade paradigms as we know it. Ultimately, whether nearshoring is the right solution for a particular company will depend on their individual circumstances and priorities, and how disruptive a company plans to be.
The automotive industry will face a number of challenges in 2023 and beyond, including the increasing adoption of electric vehicles, the unpredictability of the supply chain and the limitations of just-in-time manufacturing. To address these challenges, manufacturers will need to focus on supplier diversity, supply chain visibility, and the ability to quickly adjust to changes in the market and production shortages.
Real-time visibility software can play a critical role in helping manufacturers save money, improve service, and safeguard their supply chain from disruption. Platforms can serve up actionable insights and an aggregate, standardized view of their supply chain data to make informed decisions on critical issues facing their supply chain. When EV order volume surges, being able to prioritize and monitor the performance of EV components can help meet order fulfillment obligations with better consistency and win more market share.
By implementing these strategies and utilizing advanced technology, automotive manufacturers can stay ahead of the curve and make their supply chain a competitive advantage.