At this year’s Automotive Logistics and Supply Chain Global Live conference,  experts from tier one parts suppliers and their service providers argued that the current disruption to the supply of automotive parts had many aspects.

International freight movements have been disrupted since the second quarter of 2020 and the situation has only become worse, with lead times for ocean container freight stretching out to record delays from the fourth quarter of last year. Container port congestion in China and on the west coast of the US is hampering the delivery of inbound material and parts. Container rate prices have gone through the roof as a consequence. According to the Freightos Index, the median cost of shipping a standard TEU container between China and the West Coast of the US stood at nearly $20,600 in the month of September.

The semiconductor shortage continues to plague the industry and looks set to last into 2022. According to figures from IHS, lost vehicle production because of the shortage is now equal to 8.2m units globally, with 2.2m units lost in North America. The full impact could be as much as 10.5m units globally for the full year.

Covid shutdowns continue to exacerbate the semiconductor shortage, notably in Malaysia, which produces 13% of the world’s supply. The Covid spike there has badly affected the outlook for supply in Q3 and semiconductor production in the country will not be back to full capacity until next year. Major carmakers directly affected by the shutdowns in Malaysia include Ford, GM, Maruti Suzuki, Nissan, Stellantis, Toyota and VW.

The chronic driver shortage in North America (and in other markets) is further hampering the delivery of parts and materials, as well as the outbound delivery of finished vehicles at a time of record-low inventory in the US.

There have also been dramatic weather events in North America, such as the winter storms that hit Texas in February, further complicating the supply of semiconductors. The storm knocked out semiconductor production at three of the US’ main suppliers based in Austin: Infineon, NXP and Samsung Electronics. It also closed delivery routes.

Critical communication

According to Maxim Serov, director of supply chain management for North American operations at tier one parts supplier Benteler Automotive, as the situation in international freight moves increasingly got more volatile, it became crucial for suppliers to implement changes to their processes.

“In some locations we implemented transit-time adjustments,” he said. “The schedule reliability is very low, down between 35-40%, maybe lower. This represents a significant delay of seven or eight days on average right now [but] it can be anywhere between three days or 23.”

Serov said communication with logistics service providers was crucial in coping with the disruption. Benteler is analysing transit-time data by lane and comparing it with SAP data to gauge the extent of the mismatch and what needs to be done to solve it.

Benteler is also analysing carrier performance, which differs from one provider to the next. “Sometimes it is more expensive, sometimes less, but we need to find the right balance. We are trying to mitigate the risks and using different services,” explained Serov.

Don’t waste a good crisis

Kelly Bysouth, chief supply chain officer at tier one parts supplier IAC, also acknowledged that 2021 has been a more difficult year than 2020. She cited the material costs that were eating into the margins of IAC’s own suppliers and the increased logistics costs, alongside the port and container congestion and delays. Bysouth also noted the disruption caused by the aforementioned winter storm in Texas.

“You see these things in ones and twos every year, such as a hurricane or an earthquake in Japan,” she said. “Every year there is something but this year everything came and is hitting us at once.”

Nevertheless, in the face of these problems, Bysouth said IAC was dealing with the disruption, and that was in big part thanks to its data-focused and system-led strategy that made the most of existing resources.

“One of my favourite mottos is ‘don’t waste a good crisis’,” she said. “You can get a lot done when you don’t have a lot of options. In the automotive space we tend to make things more difficult than they need to be sometimes.”

Bysouth said mitigating disruption over the year has been about effectively pulling data out of the IAC’s existing systems to identify exceptions and proactively managing them before operations were directly affected.

IAC’s plants in North America all have an ERP system and are linked on a common platform, something the company is also rolling out across its other regional operations. “Once we have that common platform it is about how you pull the data and analyse it and identify exceptions that you can go and take action on. We have worked a lot on that,” said Bysouth.

Buffering the aftermarket

There are also challenges in the aftersales part of the business, according to Matthew Pohlman, vice-president of supply chain operations at First Brands Group (formerly Trico Group), which makes parts predominantly for the aftermarket.

Pohlman said that First Brands was looking for better visibility in terms of fill rates and costs, and looking to more accurately view customer schedules as demand for parts increased artificially as a consequence of customers building up buffer stocks. The biggest issue, according to Pohlman is improving availability of materials to its customers at the lowest cost.

“Everyone is having to put buffer inventory in depending on where its coming from but it is taking twice as long now as it did, and its taking twice or three times the money to move it,” he said.

Again, the key to combating the problem is communication with the customer and access to the most accurate data and analytics they have to understand what is needed and where it is.

“You have to have data and people who are willing to open it up and communicate it,” said Pohlman.

There is more flexibility in the aftermarket, according to Pohlman because parts can be reboxed or rekitted differently, moving parts that are in surfeit to areas where they are in high demand and shorter supply. Nevertheless, the continued hit on lead times for the delivery of parts is crushing everyone, whether on the inbound or aftermarket sides of the business, he acknowledged.

Long-term localisation

What suppliers are also looking at now as a long-term strategy to control risk is a greater level of localisation.

At Benteler, Serov said the company had to look at greater localisation of production in North America and was working with its purchasing department on that to minimise risk, disruption and cost.

“Benteler is sourcing a lot from oversea, about 25% of our purchase value comes from Europe or Asia. This is too much and makes for a difficult situation right now,” he acknowledged.

Pohlman also pointed to the advantages offered by having suppliers closer to market.

“The nice thing about local for local is your value stream is closer and faster, the response time is much quicker, and all the benefits that comes from that,” said Pohlman. “We have much less issue with our local supply versus imported material.”

Localisation of supply is certainly a trend when it comes to lithium-battery supply. As local EV production grows, it makes more sense to make lithium batteries local to the assembly plants, not least given the various quality and safety issues involved in transporting what is designated a dangerous good. Electric vehicle (EV) sales in North America made up just 2.8% of the market last year but are forecast to increase to 26% by 2030. Battery production in North America is set to grow from 44 GWh in 2020 to 280 GWh in 2030, according to the latest EV battery supply chain analysis from Ultima Media’s business intelligence unit, Automotive.

Labour losses

However, speakers did acknowledge that localisation was threatened by the ongoing problem of labour shortages. The ongoing driver shortage is well documented. The trucking industry needed tens of thousands of drivers even before the coronavirus hit but shutdowns and curbs on movement have disrupted automotive supply chains. Driver absenteeism and other labour shortages since the lockdowns are now cuasing issues at a time of high demand, including in warehousing and contract logistics.

“[We have] a large distribution network but we are struggling to find labour, confirmed Pohlman.

First Brands has consolidated a number of separate companies in recent years. Originally a wiper blade manufacturer, in the last year it has bought three other companies: Brake Parts, Champion Laboratories (filtration parts) and Centric Parts (brake components).

“As we have brought companies together [we have tried] to consolidate them into an area but have found it very challenging to find the labour,” said Pohlman. “You do it with incentives, longer-term pay and a lot of things. Recently we have brought new material into Mexico and it is very difficult to find and keep labour.”

Bob Peterson, vice-president of marketing and product management at packaging export Orbis also pointed to issue of labour shortages and said it had forced Orbis to be creative, including through the greater use of automation in certain processes.

Warehousing automation was also something mentioned by Michael Anderson, vice-president of the automotive vertical for North America at container shipping company Maersk.

“[Labour shortage] is an ongoing challenge based on our new reality,” he said. “Some of the warehouses that are having issues sourcing local staffing, we are endeavouring to automate further along the way to help alleviate that.”

At the end of the day, the lesson most clearly learned from the disruption that escalated in 2021 is to take every announcement or development that could possibly affect the supply chain very seriously.

“There is no model or analytics that could have predicted the impact on the industry that we saw over the last 18 months,” said Brandon Mason, lead analyst for Global Market Intelligence at Eaton. “But it is important to scenario plan and [recognise] that we don’t live in perfect world. What else could go wrong? Let’s start to think of what that could be so at least we are not caught flatfooted.”