The global economy has been hard hit in the last couple of years, with the automotive industry appearing to be one of the most affected by supply chain disruptions caused by the onset of Covid-19. In a recent survey conducted by The Economist Intelligence Unit, it was found that the automotive industry has experienced severe delays and shortages in the supply chain.
This survey compared an array of industries, such as clothing and footwear, fast-moving consumer goods (FMCG), IT and electronics, healthcare and the automotive manufacturing industry. Car manufacturing has been impacted by global shortages of certain parts, such as semiconductor chips, tire rubber and foam. These shortages have led to severe disruptions, especially those caused by the extremely high demand for semiconductor chips.
Across the globe, car manufacturers have faced delays in getting the necessary parts. As a leading supplier of vehicle parts both locally and internationally, Formex Industries has been at the forefront of mitigating these supply chain disruptions, especially when it comes to metal components, welded assemblies and tubes.
Supply chain disruptions in the automotive industry
Issues within the supply chain have affected businesses in both operational expenses and reputational costs. By not being able to fulfil orders and make sales, the car industry has taken a big knock in the last year. In general, vehicle production in 2021 has been lower than in previous years because of the shortage of semiconductor chips.
It is estimated that seven million more vehicles were manufactured in 2020 compared to estimates for this year. Factories have been closed and employees retrenched in light of these supply chain disruptions. This has had a dramatic effect on vehicle production and it will take time for the industry to recover.
Car manufacturers have had to cancel orders for chips, thinking that sales would take time to bounce back from the economic recession caused by the pandemic. However, vehicle sales have recovered astonishingly well. When automakers and suppliers tried to order more chips, they were put at the bottom of the waiting list as the highly sought-after semiconductors were being sold to other industries.
Shortages of semiconductors
Semiconductor chips are used in a wide variety of electronic goods, such as computers, smartphones, televisions, washing machines and cars. These chips control the flow of electrons in electrical circuits. With so many industries needing to purchase or upgrade their devices because of the increase in working from home, there has been a global shortage of semiconductors.
Without these chips, car manufacturers have had to halt production, especially high-end vehicles that require these devices for infotainment, navigation and engine aids. GPS and driver-assistance systems rely heavily on semiconductor chips to function properly. Other components that need these products include touchscreens and remote keys. A single car can require up to 1500 chips.
Some vehicle manufacturers have responded to the chip shortage by dropping these premium features, at least until the chips become more readily available. This means selling cars without modern technology, screens and vital features. Another strategy has been to produce more petrol vehicles, as diesel vehicles tend to require more chips.
Further disruptions to the supply chain
The outbreak of Covid-19 variants, such as the Delta variant, indicate that more disruptions are set to come. Economic activity in all regions continues to be affected by lockdowns and strict regulations aimed at easing the effects of the pandemic. Delays at borders, ports and other points of entry, cause production timelines to be unpredictable.
Without a smooth-running supply chain, car manufacturers are left in the lurch waiting for parts to arrive. Vehicles that are manufactured without certain parts are being put in storage until they become available again. Costs are driven up and consumers are left waiting.
Digitising the supply chain
It has become apparent that changes need to take place in order to mitigate the effect of further supply chain disruptions over the next five years. Many stakeholders are calling for strategic planning using digital tools. The pandemic has directly disrupted international trade but has also been a catalyst for reshaping the global economy, especially in terms of the exchange of goods and services.
By digitising the supply chain, real-time information about current and potential disruptions can be shared. This promotes greater transparency and accountability, but also requires good cybersecurity if the information is to remain accurate and reliable.
OEMs (original equipment manufacturers) have started digitally transforming their operations to improve customer services, and to establish stronger ties with end-users. By opening up the communication channels, manufacturers and supplies can make more informed decisions about appropriate action to take.
Other solutions to current problems
One of the reasons the semiconductor chip shortage had such a big impact is that the market is dominated by just a handful of manufacturers. Being reliant on a single supplier can cause big disruptions if that supplier can no longer provide stock. By not just relying on the cheapest supplier, the automotive industry can ensure a more stable supply chain.
Moving away from the dependence on China for parts could also alleviate supply chain disruptions. Diversifying production and the procurement of parts in local regions will also help to stabilise the supply chain. African vehicle manufacturers need to search for local suppliers and partners.
Another possible solution is for automotive companies to look at warehousing options. This would allow them to keep a stock of necessary parts and diversify their dependence on suppliers and third-party logistics providers. However, this also increases costs and might be more risky for businesses in terms of over- or understocking.
Finding a way forward
Domestic car production has been highly impacted by supply chain disruptions in the last year. It is expected that the chip manufacturers will be able to catch up with demand only in 2022, despite promises to resolve the issue by June this year. Necessity is the mother of invention, as they say.
Formex is a reliable supplier of high-quality parts to a range of brands, both internationally and in South Africa. We understand the importance of an effective supply chain to ensure that operational costs are kept low, and customers have access to the vehicles they wish to purchase.
Formex Industries is a metal forming and assembly company that supplies a variety of complex products to the local automotive industry and the export market. The company is based in the Nelson Mandela Bay metropole, South Africa’s foremost region for automotive manufacturing and export.
Formex is a supplier with 69% black ownership, of which 37% are black women. The company is owned by Deneb Investments Limited – a subsidiary of Hosken Consolidated Investments Limited (HCI) – one of South Africa’s biggest true B-BBEE companies listed on the Johannesburg Stock Exchange (JSE).
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