Revving Up Resilience

Strengthening the Automotive Supply Chain for Electronic Components

In the high-stakes world of automotive manufacturing, an efficient and robust supply chain is just as vital as the engineering prowess behind the vehicles themselves. As cars continue to advance technologically, incorporating an ever-growing number of electronic components and systems, automakers face the formidable task of optimizing their supply chains. 

The disruptions caused by COVID-19 and recent electronic component shortages have significantly impacted the automotive industry. With the demand for electronic components skyrocketing across various industries, the automotive sector found itself grappling with disruptions that led to production delays and quality compromises. 

Automakers were forced to confront the reality that a single electronic component could have a domino effect and jeopardize the entire manufacturing process, leading to production halts and the release of vehicles without certain features (see The Great Automotive Chip Shortage of 2021). These events cast a spotlight on the vulnerability of automotive supply chains and emphasize the need for an intensified focus on supply chain resilience to withstand future unexpected disruptions.

Automotive manufacturers have recognized the importance of strengthening their supply chains for electronic components, and here we explore strategies and tactics that leading auto manufacturers are deploying to minimize future disruptions. By implementing proactive measures, manufacturers can mitigate the impact of future supply chain disruptions and ensure a smoother production process.

The playbook: Strategies for more robust supply chains

To fortify the automotive supply chain against unexpected disruptions, most manufacturers are adopting a holistic approach that encompasses numerous key strategies. Here are our top ten: 

1. Diversification of suppliers: Relying on a single supplier for critical components can be risky. By diversifying the supplier base, automakers are reducing the vulnerability of their supply chains. Working with multiple suppliers not only minimizes the impact of a single supplier failure but also encourages healthy competition, ensuring better pricing and quality.

2. Enhanced communication and collaboration: Strengthening communication and collaboration with suppliers and distributors is crucial for optimizing the supply chain. Timely information sharing can help identify potential bottlenecks and enable proactive solutions. Clear channels of communication and collaborative supplier relationships foster trust and prompt issue resolution, improving resiliency.

3. Close monitoring, forecasting and simulations: Modern procurement and supply chain platforms leverage advanced analytics and real-time data, digital twins and IoT technologies to enable real-time monitoring and simulations of supply chains. The constant monitoring and forecasting of demand patterns and component availability enables manufacturers to identify potential disruptions, anticipate bottlenecks, steer clear of many disruptions, and take timely corrective actions to prevent production delays.

Automakers are increasingly leveraging shared electronics industry data and new analytics and visualization tools. One example is Spectra, a web-based platform that allows automakers and their engineers to search, compare and monitor components across sources and platforms, providing reports and alerts on component availability, pricing and specifications.

4. Strategic stockpiling: Just-in-time (JIT) inventory management might just be a thing-of-the-past. Maintaining a buffer inventory of critical components is back in vogue. For example, Toyota – a JIT pioneer – has been using strategic stockpiling of components to maintain production levels despite recent shortages. It's important to do this judiciously, striking the right balance between maintaining adequate inventories and avoiding excessive inventory carrying costs. 

5. Investing in emerging technologies: Embracing emerging transformative technologies like AI, IoT, digital twins and blockchain can improve supply chain visibility, traceability, proactive decision-making and risk management. BMW, for instance, utilizes AI and data analytics to monitor suppliers and preemptively identify potential delays. 

Another transformative innovation, 3D printing, is emerging as a viable alternative for some component manufacturing, particularly for specialized and low-volume parts. 3D printing has the potential to revolutionize component manufacturing by allowing for localized on-demand production. 

6. Partnering with technology companies: Automakers are embracing partnerships with technology companies to increase their access to advanced solutions and expertise. Collaborative efforts can drive innovation, enhance supply chain visibility and facilitate the adoption of new technologies. For example, Tesla, Mercedes, Toyota, BMW and Rivian are all partners with Altium, the leader in PCB design software and other tools that connect PCB designers, part suppliers and manufacturers working to develop and manufacture products faster and more efficiently.

7. Modular design of components and systems: Incorporating modularity into component and system designs offers manufacturers much-needed flexibility in the face of supply constraints. This approach allows for the interchangeability of parts, thus reducing dependency on single components, speeding up system updates and enabling easier integration of alternative parts during shortages.

8. Investing in localized manufacturing: Recent events made the advantages of component production that’s closer to home quite apparent. In response, some automakers are investing in new localized component suppliers, often incorporating advanced automation capabilities. When components are made closer to where automakers need them, automakers gain more control over their supply chains.

9. Risk assessment and contingency planning: Conducting thorough risk assessments and developing robust contingency plans are vital for preparing against potential disruptions. Identifying vulnerabilities and implementing backup strategies can help minimize the impact on production and customer satisfaction.

10. Continuous improvement and adaptability: Embracing a culture of continuous improvement and adaptability is essential for supply chain resilience. Regularly analyzing and optimizing processes, technologies and supplier relationships can help identify areas for improvement and enhance the overall resilience of the automotive supply chain.

Future outlook

As automotive technology continues to evolve, the supply chains that support the industry must keep pace. Continuous innovation and adaptation by all ecosystem players will be essential to meeting the demands of an increasingly dynamic market.

Cybersecurity is one area that is likely to gain prominence. As vehicles become more connected and reliant on software, ensuring the integrity and security of these systems will be critical. This will require a comprehensive approach that encompasses not only the cybersecurity of the vehicle but also the security of the supply chain through which components and software are sourced.

Customization is another trend that is likely to shape the future of automotive supply chains. As technologies such as 3D printing continue to mature, there will be greater opportunities for custom manufacturing of components. This means that supply chains will need to be more flexible and capable of supporting more diversified production.

Sustainability will continue to be at the forefront, as both consumer preferences and regulatory pressures drive the industry towards more environmentally friendly practices. This will result in the increased use of recycled and alternative, sustainable materials in vehicle production.

Autonomous vehicles and advanced driver assistance systems (ADAS) are poised to be a game-changer for the automotive industry, yet they will bring about new challenges and complexities. Sourcing such a wide variety of sensors, lidar and advanced electronic components will require highly specialized and robust supply chains.

Steady hands on the wheel

As the automotive industry embraces ever-advancing technologies and navigates the complexities of global sourcing, building resilient supply chains is no longer an operational goal or aspiration—it is a strategic imperative that underpins the entire automotive enterprise. 

The convergence of new transformative technologies is providing automotive manufacturers with an array of tools to fortify their supply chains and better weather unexpected disruptions. However, the increasing complexity of vehicles and the rapid pace of technological change demand that manufacturers maintain agility and stay forward-looking in their strategies.

Through strategic diversification, technological adoption, enhanced collaboration and new technology partnerships, automotive manufacturers can ensure that their supply chains are robust, adaptable and capable of supporting the cutting-edge vehicles of tomorrow.