Due to a number of circumstances, the weaknesses and fragility of our supply chain have been exposed in 2020, and American automakers have certainly borne the impact. Notably, the semiconductor chip shortage has the auto industry spinning.
Vanessa Miller, a partner with Foley & Lardner in Detroit, explains the shortage to MH&L’s chief editor Dave Blanchard in this Supply Chain Insider podcast, Expect the Unexpected.
Miller explains that the 2020 Covid-19 lockdowns sent production facilities scrambling as demand for consumer electronics increased and the need for cars (and their chips) decreased. Chip suppliers placed their capacity with other industries.
Then we started to see more consumer demand for automobiles and automakers increasing their estimates to chip manufacturers. But, because of their earlier shift in commitments, there were delays in filling the automotive industry’s needs, and lines began to shut down.
This chart from Visual Capitalist shows the impact of the shortage on the 10 biggest hit models.
Miller and others point to additional events that exacerbated the situation. Several factors created the perfect storm, from the Suez Canal blockage to the massive storm in Texas, the trade war with China, and the draught in Taiwan. At any given time, there is any number of catastrophic events that can adversely affect the supply chain at any time.
Miller goes on to point out that, to try to meet supply, automakers engaged in what Miller calls the “Toilet Paper Phenomenon.” Instead of working closely with their suppliers, they increased their demand, making everything even more confusing.
So, what can you do to mitigate shortfalls in your supply chain?
Miller explains that many of her clients are moving away from single sourcing and toward multi-sourcing components, as well as diversifying the supply base so that parts are coming from more than one country and some domestically. And, though she says the Just-In-Time model is here to stay, companies are looking toward some warehousing for specific parts.
In a recent 2-part blog article on QAD’s website (How the Semiconductor Shortage Could Have Been Averted and How to Prevent the Next Semiconductor Shortage), Terry Onica identifies “three areas to consider:
- Ensure your organization’s essential supply chain processes are defined, documented, and implemented
- Periodically assess your organization’s essential supply chain processes against best practices
- Leverage core ERP technology to provide ongoing transparency of supply chain status and prediction of potential future disruptions”
She offers a list of questions your organization should ask itself (see below) and provides ways to use lead time as an essential supply chain process to prevent the next disruption:
“Do you take your organization’s lead times and leverage them in ERP when calculating your demand?
Does your quality management system remind your organization to review customer policies/requirements annually and take actions to deploy these requirements as necessary throughout your supply chain?
Is your organization leveraging your ERP’s EDI/Web EDI functionality with 100% of your suppliers to quickly communicate demand down to your suppliers?
Does your company have an automated quality management system that reminds you it is time to audit/review suppliers, track audit results and issue supplier corrective actions, as necessary directly, to a web portal for prompt communication?”
In his article, Stress Testing for the Next Supply Chain Disruption in Industry Week, Eric Green points to the need for investing in virtual twins and IT infrastructure to help weather the storm of supply chain shortfalls.
“We need to build new levels of resiliency into our networks of suppliers and stakeholders. Those capabilities require a hard look at how we collect and use data from across our network, and digitalization investments that can empower businesses to predict and pivot when disruption occurs.”
Green explains that a virtual twin is usually associated with having virtual replicas of physical machines. But, you can apply the concept beyond your manufacturing or distribution center and into warehouses and suppliers to track inventory and transit times. His article gives more details.
“Technology isn’t a silver bullet for a resilient supply chain,” Green writes, “but the right IT infrastructure is certainly a critical piece. It’s important to underscore that the effectiveness of your supply chain virtual twin hinges on the quality of the data fed into the model. As your business gains visibility and the ability to simulate supply chain scenarios in pursuit of resiliency, it’s also possible to gain strategic business insights as well.”
It is important to remember, as we climb out of this particular chain of events that caused disruptions in our chain of supply, that we can’t chalk this up to a one-time event and hide our heads in the sand. We need to respond in a way that will secure our better future.
Recently, Mayor John Tory of Toronto announced that the city is in partnership with the Governments of Canada and Ontario to bring a new end-to-end influenza vaccine production facility to Toronto. Canada was slow to start Covid-19 vaccinations because they were chiefly dependent on other countries to supply the vaccine. As a response, the establishment of this new facility will help secure priority access to domestically manufactured vaccine supply in the future while providing employment opportunities in the Toronto region.
We need to prepare to be resilient and use our creativity, skill, and knowledge to turn this catastrophic lesson into an empowering opportunity.
