Automobile Supply Chains Challenged by COVID-19

It’s hard to think of an industry who didn’t face major supply chain challenges in 2020. COVID-19 rocked global supply chains in an unprecedented fashion, with 95% of business reporting operational problems due to the pandemic. Perhaps the hardest hit industry was the automobile industry. According to one report conducted by the Economist Intelligence Unit, over half (51.7%) of supply chain managers in the auto sector said they experienced “very significant” disruptions to supply chains.

Automobile manufacturers have one of the most complex supply chains in modern business, especially with the increase in globalization. The average vehicle as around 30,000 individual parts coming from suppliers spread across the globe, and these parts must come together to produce all the safety features, sleek aesthetic, technological functions, and more that consumers have come to expect. Even the tiniest of parts, as witnessed with the semi-conductor shortage last year, can have the biggest impact and create problematic supply chain bottlenecks for automotive manufacturers.

Modern auto companies need to enhance supply chain resilience and mitigate risk. Enterprise Resource Planning (ERP) technology can provide the visibility, collaboration, and predictive insights needed to solve supply chain issues for automobile companies.

Enhance Collaboration Across the Entire Supply Chain to Reduce Risk

Increasing collaboration across your entire supply chain gives you allows you to better plan for potential disruptions. With digital technology like an ERP system, you can manage your supplier agreements and relationships in a live, virtual environment. You can view data on your supplier, distributor, and logistics agreements and make necessary adjustments to mitigate risk. Keeping lines of communication open and receiving updated information from suppliers means you can better assess when particular parts may be in short supply and determine weaknesses in your supply chain. You can then prepare for disruptions by creating new supplier relationships, placing orders ahead of time, or nearshoring to local suppliers to avoid global tariffs, shutdowns, or other supply chain interruptions.

Optimize Your Inventory Management

Optimal inventory management is incredibly important for auto manufacturers. Having a complete picture of exactly how many of each part you have in stock and where it is located is essential to reduce storage costs while also making sure you have enough parts to produce your necessary products. With each vehicle consisting of tens of thousands of parts, automobile manufacturers certainly have a lot to keep track of! An ERP system that can provide you with real-time inventory data, and even alert your team when you are running low on certain parts, can make all the difference.

Use Predictive Analytics to Plan for Changes in Supply and Demand

No one anticipated the demand for automobiles to rebound as quickly as it did after the economic downturn last year. Rising demand in conjunction with the shortage of parts, especially semiconductors, has put a major strain on the auto industry to keep up with consumer expectations. Technology that allows you to predict changes in demand by aggregating order history, customer data, and industry trends can help you better prepare for changes in demand. You can then adjust your supply chain to prepare for surges in demand and reduce inventory costs during periods of decreased demand. This is especially important as automobile manufacturers move to more customized, just-in-time manufacturing models. You can also use predictive analytics to help foresee changes in supply and plan accordingly. This is incredibly important in the complex auto industry, since a delay in just one area of your supply chain can slow down the distribution of necessary parts, meaning production gets delayed or even shut down. Increases in visibility and a centralized view of inventory allows for the early identification of shortages and delays.

Conclusion

Automobile supply chains are facing one of the most challenging disruptions to date. While the pandemic resulted in unforeseen, unprecedented challenges for global supply chains, auto manufacturers can use ERP to implement best practices that will help reduce risk and minimize future disruptions.