How will the Pandemic Change Automotive Supply Chains?

07/13/20

Has your company considered long term changes to your supply chain as a result of COVID-19?

APICS Greater Detroit serves local supply chain professionals by providing knowledge and education needed to compete in today’s world. We are excited to share this week’s blog written by a guest author, Danni Tachoir, an automotive supply chain professional.

Danni shares her thoughts below on how the pandemic will reshape the supply chain for automotive and associated risks.

The coverage about COVID-19 began in the U.S. around late 2019. At that moment, the virus was someone else’s problem, the U.S was in the clear and it was our intention to remain untouched. Fast forward to early 2020 when the W.H.O. declared it as a pandemic, COVID-19 then became what felt like a never-ending nightmare. The reality of this virus has forced organizations to re-evaluate their strategies. In the midst of stay at home orders, businesses find themselves struggling to stay alive. Unemployment rates are the highest they have ever been and the federal government is providing stimulus relief to help the economy stay afloat.

I’m not sure about you, but the thought about buying anything more expensive than a sandwich quickly evaporated. As a resident of southeastern Michigan for majority of my life, I wondered how will this change the only industry I’ve ever known? I’m referring to the business of manufacturing and selling vehicles. If you’re a Detroiter, chances are, you either are an employee of the Big 3 (GM, Ford, FCA) or you’re employed somewhere deep in their complicated supply chain that supports their manufacturing.

I was on a GM project when the pandemic began to impact the supply chain. China was on lockdown, people couldn’t freely grocery shop let alone commute to work to ship car parts. The lockdown created supply issues for GM assembly. So how will the pandemic reshape the supply chain for automotive?

How will the supply chain change?

Increasing the localization of the supply chain: One potential trend is localizing of manufacturing within the supply chain. We will likely see a general trend of manufacturing movement back to the U.S. for the automotive industry. During a time of crisis, maintaining control of the supply chain is essential for a company. When the supply chain is disrupted, so is the flow of goods. Without the product, it is obvious the profits will be impacted. When the manufacturing is local, it increases control for the upstream segment of the supply chain, thus increasing the chances of delivering the product to the customer downstream. In addition to increasing control another advantage is the majority of the workforce will be in the same time zone. This aids to increasing work productivity compared to working with teams internationally. During the beginning stages of the pandemic, there was increased urgency to get answers and to map out solutions. Having manufacturing facilities that are local allows business to quickly move through the problem resolution process.
Decreased head count to support the same level of required capacity: In the middle of this pandemic, most companies will ask how they can we do more with less? There’s a drive to reduce cost but still attempt to maintain a quality output. This change will allow a company to reduce overall cost and will be an important piece that companies will build into their future strategies. There is a need to have clearly defined contingency plans to maintain the norm with less headcount. This brings flexibility to your operations therefore allowing a company to react faster in unprecedented times.
Redundancy in suppliers: Increasing the number of suppliers to produce the same part is redundant and can be costly, but will make the supply chain more robust. A potential lack of supply means an impact to profits, but the other unknown is when the supply will resume in a situation where all the dependence is on one vendor. There is always going to be a struggle between staying efficient while ensuring customer happiness, which can be conflicting targets, however it increases the likelihood of having the product to the customer. The ability to react quickly is always important, but it’s compounded in a pandemic. This strategy enables the supply chain to be more flexible to disruption. These variables impact the goods to the end customer. It plays into the thought of over preparation to protect any issues downstream of the supply chain.
Acceleration of digitizing the supply chain: The digital transformation of the supply chain had already begun but the pandemic will likely increase the speed to get there. Digitizing the supply chain is another way to allow a company to be more flexible. In this pandemic there’s a heavier dependence on data within the supply chain which is crucial to the ability of accurate decision making. Companies need to understand all options and avenues when it comes to supply of the product. The faster the data is available, the faster an accurate decision can be made, because ultimately time costs money.

What are the risks associated with these changes?

Higher labor, land and goods costs: The main risk of increasing the flexibility through localizing manufacturing within the U.S. could mean higher cost due to labor and land. The company should also consider what percent of their manufacturing can be automated. If a company has more automated manufacturing, then moving the manual labor back to the U.S will be more viable than a company with a low percent of automation. The most obvious risk attached to increasing redundancy with the supply base and digital transformation of the supply chain is cost. These increased costs will need to be assessed against the increase of flexibility and control.
Cross-training fewer employees: The risks associated with decreased headcount is shifting from a “master of one” mentality closer to a “jack of all trades”. The employees will naturally need to assume more responsibility when there’s a reduction of the workforce. There’s a mental burden associated with the change, and there will be a bigger challenge in finding the right individual for that type of role. There is also increased cost due to the growth of responsibilities, however overall cost could decrease as headcount has decreased.

The reality of the pandemic is forcing many companies to review their strategy. Costs and profits will remain as top priorities because they’re the foundational elements of a business model. But the protection of product availability will need to be equally as important as profit. Companies will need to consider a new mindset focused on delivering products versus how much revenue can be generated. That mentality shift will drive a different supply chain model.

About the Author

Danni Tachoir completed a bachelor’s degree from Michigan State University in Supply Chain Management. All of her experience is in automotive supply chain and it’s an area that continues to interest her everyday.

Looking for an opportunity to discuss the future impact on supply chains?

JOIN US TOMORROW (July 14th) for our FREE Supply Chain Community Connect.

We will be joined by Camille Chism of Indigo Packaging and Consulting, LLC. Camille will be speaking to the topic of e-commerce packaging and how it is affecting the supply chain. There will plenty of time to ask questions and connect with other supply chain professionals. More info below.