Navigating the Supply Chain: Challenges and Innovations in the Automotive Business

Before COVID-19, nobody thought too much about the global supply chain, but queuing up for toilet paper at the supermarket does have a powerful ability to change your perspective on the importance of things that were not previously front of mind.

Ever since the pandemic, many industries have been struggling to recover from the months of delays and bottlenecks in the global system. No industry has been more obviously impacted than the automotive sector, with car makers still struggling to meet the demand for their vehicles, often resulting in long delays.

However, the truth is the industry was already in a state of flux even before the global pandemic struck in 2020. The electric vehicle (EV) market has changed the automotive industry and disrupted the conventional supply chain, injecting new players and variables into an already complex web of logistical challenges around the globe.

Including nuts and bolts about 30,000 components go into making a single motor vehicle, so ensuring every piece is available when needed, is not an easy exercise.

Thankfully, there are some key innovations coming to help the automotive global supply chain catch-up and evolve for the changing future. Here are some ways the car industry is changing to ensure a smoother supply chain now and moving forward.

DIY

It may sound simple, but some manufacturers are taking the do-it-yourself approach, ditching suppliers and producing key components themselves.

This is particularly relevant with electric vehicles (EV), as batteries, electric motors and similar parts are in increasingly hot demand and therefore subject to supply chain fluctuations.

Tesla has demonstrated that handling manufacturing as many elements as possible in-house makes it easier to maintain high rates of production. That’s why so-called ‘legacy’ manufacturers – giant companies such as Ford and Stellantis – are investing billions in producing their own batteries for future EV models.

Closer connections

Similarly, car companies are working more directly with component suppliers to ensure a steady supply of the most important elements. The most obvious area for this is semiconductors, the microchips that are crucial to almost every piece of modern technology and cars in particular.

Semiconductors were one of the first major components to run short of supply during the pandemic and it resulted in car makers having to shut down production lines for months.

To combat this, some car companies have forged closer relationships with semiconductor producers to ensure a more stable supply.

The Chinese car industry has been particularly proactive in this area, with leading brands including BYD and GWM already making semiconductors in-house.

Build local

Another recent trend has been the practice of sourcing components from suppliers closer to manufacturing hubs to physically reduce the distance parts need to travel. This behaviour, known as ‘nearshoring’, has seen US-based brands looking to Canada and Mexico (as well as domestically) for parts, while European brands look for cost-efficient producers in Eastern Europe, rather than relying on suppliers from further afield.

Rely on AI

Artificial Intelligence (AI) is big news in every industry across the globe, with computing power reaching unprecedented levels. By using AI to forecast future demand for products with greater accuracy, companies can have a clearer picture of component tracking and predict potential supply problems.

AI also has the potential to design more streamlined supply chains, which will reduce the strain on the global network.

^Disclaimer

^{Viva Energy Australia Pty Ltd (“Viva Energy”) has compiled the above article for your general information and to use as a general reference. Whilst all reasonable care has been taken by Viva Energy in compiling this article, Viva Energy does not warrant or represent that the information in the article is free from errors or omissions or is suitable for your intended use.}