World war three for the supply chain
Who will be left standing after world war three?
Carmakers around the world have a lot on their plates at the moment. The repercussions of the Covid pandemic continue to rumble through the supply chain and disrupt production. The impact of the semiconductor shortage, the cost and delay in container shipping, and the shortage of labour, mean that global light vehicle production is expected be short by 10.5m units this year, according to industry analyst IHS Markit. The logistics and supply chain costs are only just beginning to be felt but they are sizeable.
At the same time, carmakers are already on the way to one of the biggest transformations in the automotive industry of the last century – electrification. Not only does that mean making cleaner cars, with fewer but more technically sophisticated parts, it means making the supply chain and logistics supporting EV production as clean as the product itself.
These pressures are transforming vehicle makers at an organisational level as they embrace new strategies and technology to deal with the upheaval.
Nowhere is this more evident than at Renault, which announced its ‘Renaulution’ industrial strategy earlier this year. The strategy is aimed at making the vehicle production and the supply chain more robust and resilient at the same time as Renault recovers stability in operations and seeks to make back what its forecasts to be a 500,000-unit shortfall in vehicle production in 2021. While Renault is at the same time relinquishing some of the collective aspects of its operations as part of the wider Renault-Nissan-Mitsubishi Alliance, supply chain coordination is still important, and that includes organising battery and EV manufacturing and supply locations.
In this Autumn edition of Automotive Logistics and Finished Vehicle Logistics magazine we feature a four-part deep dive into Renault’s strategy. Jean-François Salles, global vice-president for supply chain at Renault Group, believes supply chain management and logistics are witnessing their most significant changes since the second world war. He talks in detail about the ‘Renaulution’ underway at Renault Group and what it means for supply chain management, sales and operations planning, digitalisation and sustainability.
Renault is not alone, of course. GM is also on a mission to transform its business, with its own ambitious goals for EV production over the next decade and beyond. The carmaker says that much closer integration with its suppliers is central to achieving the 1m EVs the carmaker intends to sell by 2025. That includes with battery supplier LG Energy Solutions, with whom GM is building two new battery plants in the US as part of the Ultium Cells joint venture. That integration also includes Honda and the two carmakers are further strengthening their 20-year collaboration to reduce the cost of development and manufacturing through economies of scale and common sourcing,
Sourcing of part also needs to be local, especially for lithium-ion batteries. That is now recognised as crucial if carmakers based in North America are to meet their EV production goals, something there is now government support for in the US under the Biden Administration. Carmakers are battling to do deals with battery suppliers and invest in local production, not least because the battery represents 30% or more of the value of an EV, and established OEMs and tier suppliers want to take more control of the battery chain.
Localisation is also important in the long-term for the tier one suppliers who are also working hard to minimise risk, disruption and cost, as was revealed at the Automotive Logistics and Supply Chain Global (ALSC) Live conference, which recently returned to Detroit, Michigan. International shipments of parts are in disarray and suppliers are buffering inventory in the face of delays and escalating freight costs. The average price on shipping a TEU container by ocean between China and the US west coast is now above $20,000.
To get an accurate view of what is where and when it will arrive, and how much it will cost, both suppliers and OEMs are looking for better visibility. That need, and the lessons on supply chain myopia learned from the semiconductor shortage, is driving advances in technology and a higher rate of adoption of digital tools. Carmakers including GM, Honda, Nissan, Toyota and VW used the ALSC Live conference to discuss what they were doing to gain greater supply chain transparency. As well as digital technology that includes a much closer collaboration at the OEMs between the supply chain and logistics departments, sales and marketing, and with the executive level of management. It also relies on better communication between OEM, suppliers and their logistics providers.
As Jean-François Salles makes clear in this edition, real-time visibility across the business is now critical to maintaining operations and that was also the message from carmakers in North America who realise that flexibility is needed to survive the continuous disruption and divergence from how things normally run, if that means anything anymore.
Supply chain disruption is now a headline topic and has revealed to people, from the street to the boardroom, just how important logistics is in the overall scheme of making a product and making it available for purchase. With the right strategy and investment, the lessons learned from the current chaos could better prepare the automotive industry for the next upheaval. But where have you heard that before?
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