Consumer demand for durable goods has taken a nosedive in recent months, and overall spending is down as people grapple with the possibility of a recession. Naturally, most sectors, especially retail, are experiencing weakened demand and falling volumes.
This is not the case, however, for the automotive industry.
“Motor vehicles enable the consumer to leave the house, something they have not been able to do as much of over the past two years,” FreightWaves Market Analyst Zach Strickland recently reported. “Combine this with easing supply chain congestion, automotive manufacturers are now able to finish vehicles that have been awaiting completion. This sector is having a bit of a renaissance, with growing demand for electric vehicles as well.”
Rail carloads for motor vehicles and parts have climbed over 9% on a year-over-year basis. This continues to point toward growing demand and strong manufacturing activity.
While automotive has not seen the same demand drop as other sectors, the industry is still coping with a slew of headwinds. In fact, some of the factors leading to this demand increase — like the rise in popularity of electric vehicles — are also placing considerable pressure on manufacturing efforts.
The automotive industry is currently facing a triple threat — chip shortages, electric vehicles and just-in-time manufacturing — when it comes to managing supply chains.
Chip shortages within the industry have been making headlines since relatively early in the course of the coronavirus pandemic. These shortages have halted assembly lines and created considerable disruptions in the automotive supply chain. At one point, the shortage grew so severe that some car manufacturers sold vehicles without the computer chips necessary to enable certain optional features, vowing to add the parts once they became more readily available.
While chip production is ramping back up, the impacts of this yearslong shortage are expected to echo into at least next year. Current political turmoil also continues to hinder efforts to scale production up to needed levels, threatening to drag the issue out even further.
“Taiwan is one of the main producers of chips, and rising tensions between Taiwan and China disrupt the supply chain further,” project44 Marketing Data Analyst Jenna Slagle said. “Ukraine and Russia are the main suppliers of the raw materials neon and palladium, so the war is also continuing to impact production.”
Many car manufacturers are getting into the EV game. These vehicles are a significant driver of demand in the industry, and they represent an environmental win. They do, however, present a new set of manufacturing obstacles.
“Companies need to work out sourcing of the materials needed for batteries, which can be scarce. In order to sustain the new demand, mining will have to scale accordingly, which will take time,” Slagle said. “This will be an ongoing obstacle within the industry as demand for electric vehicles continues to increase.”
In addition to investing in material sourcing, many manufacturers are researching recycling options, which would reduce their reliance on mining new materials by reusing old materials. A successful recycling effort would prove positive for manufacturers, the environment and consumers, as it would keep materials flowing, reduce environmental burden and push prices down.
The long-term benefits of EVs promise to outweigh the short-term burdens, but in the meantime, working through the obstacles associated with trying something new is a challenge for the automotive industry.
The automobile industry is famously lean and practices JIT manufacturing, meaning inventory levels are kept as low as possible to reduce cost. If operating perfectly, a parts shipment will arrive at the assembly facility right as it is needed on the line. This drives down costs, as storage is not necessary.
When just-in-time manufacturing is not operating perfectly, however, delays, shortages and even all-out production halts ensue.
“While this practice keeps costs low, it can also be easily disrupted and cause massive delays,” Slagle said. “JIT is meticulously planned, so things like missed deliveries and delayed shipments can derail production.”
Visibility is critical to JIT manufacturing due to the level of meticulous planning required to keep production lines moving. This is especially true as consumer demand for vehicles remains strong.
The best way for manufacturers to achieve the level of visibility they need to thrive in today’s market is to embrace new, high-tech solutions.
“Emerging tools can help more proactively monitor upstream supply chains and help automotive manufacturers better plan what safety stock might be needed and what shortages could be in the pipeline,” Slagle said. “The farther upstream a manufacturer can see, the easier it is for them to be proactive, whether that means bulking up on certain parts or looking at other sourcing options.”
Despite its cost-saving potential, just-in-time manufacturing can prove difficult to pull off without the help of next-gen technology. Global automotive supplier Magna learned this firsthand while trying to manually coordinate shipments across various points of production. Poor visibility and delayed shipments led to expensive shutdowns for customers, threatening the company’s entire strategy.
By partnering with project44, Magna was able to gain superior visibility into its pipeline and automate its processes, thereby optimizing and fully realizing the benefits of its JIT strategy.
Magna realized a plethora of benefits across its supply chain after partnering with project44, including:
A 40% increase in on-time, in-full deliveries in the first two months.
A 100% increase in internal productivity.
A 40% cost savings in the event of special transport.
“In less than 4 weeks, Magna was collecting, normalizing and enriching data from hundreds of telematics devices — and feeding that enriched data into their critical systems,” according to a project44 case study. “The Magna team now optimizes routes and proactively plans for predicted future issues to achieve OTIF within precise appointment windows.”
The automotive industry may be facing some significant headwinds, but manufacturers can take advantage of strong product demand by looking ahead, choosing the best tech partners and optimizing their supply chains.
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