Auto Trade Rethinks Price-Slicing Playbook as COVID-19, Chip Shortages Disrupt Provide Chains


Dana’s Craig Value, senior vice chairman of buying and provider growth, is pushing firms in his provide community to alter the way in which they do enterprise, stepping away at occasions from the just-in-time, lean manufacturing practices which have guided automotive producers for practically 40 years.

Dana is sourcing such key commodities as resin, castings, forgings and a few electrical elements from a number of suppliers, asking suppliers to carry in warehouses a backlog of vital stock, and constructing out its software program community to higher observe suppliers, a course of Dana hopes to finish this 12 months, Value stated.

That cuts towards the just-in-time stock and manufacturing method producers have adopted from Japan’s Toyota Motor Corp because the Nineteen Eighties. The brand new catchword in manufacturing is “resiliency,” underscored by Toyota’s February revelation it had constructed a four-month chip stockpile.

Dana has additionally moved to assist its smaller suppliers recruit employees and safe delivery house on containers to keep away from any impression on its operations, Value stated.

And within the firm’s headquarters exterior Toledo, Value is engaged on suppliers to hitch a knowledge sharing community that may give Dana an in depth take a look at how suppliers two or three steps eliminated are doing – moderately than simply relying on shipments to indicate up as offered in a contract. “We’re working towards full supply-chain transparency, which isn’t usually accessible in the meanwhile,” he instructed Reuters of the plans on the $7 billion firm. “It’s a journey that we’re on to get as a lot knowledge as we will, not for every other motive than simply safety of provide.”

BRITTLE SUPPLY CHAIN Efforts like Dana’s are underneath manner all through an trade buffeted by a sequence of surprising occasions. The chip scarcity is a high-profile drawback, however not the one one.

“The entire situation is exposing the brittleness, the fragility of the automotive provide chain,” stated Richard Barnett, chief advertising officer of Supplyframe, which gives market intelligence to firms throughout the worldwide electronics sectors. BorgWarner Chief Government Frederic Lissalde instructed Reuters firms are wanting on the whole value of any method as an alternative of merely its upfront price ticket.

“We’re making an attempt to dual-source every time doable vital elements,” he stated. David Simchi-Levi, a professor of engineering programs on the Massachusetts Institute of Expertise, who has labored with firms like Ford Motor Co on strengthening provide chains, stated curiosity has exploded within the final 12 months. “Resiliency is right here to remain.” The maths is easy. Such approaches could value extra upfront, however they’re prone to pay for themselves if they assist firms keep away from the costs of as much as $2 billion and $2.5 billion confronted by Common Motors Co and Ford, respectively, for the chip scarcity.

Ford’s chief product platform and operations officer, Hau Thai-Tang, stated the No. 2 U.S. automaker beforehand altered its method, however the previous 12 months has accelerated the change additional. Stockpiling key components or supplies, and utilizing a number of sources are again on the desk.

“For those who’re down for 30 days on the F-150 plant, what’s the fee to the Ford Motor Co versus paying this insurance coverage to stockpile these chips?” he stated, referring to the corporate’s extremely worthwhile full-size pickup truck. “That’s the way in which we might assume via it.”

Even so, Ford has needed to halt F-150 manufacturing briefly at occasions, and is stockpiling vehicles which are lacking components.

Ford is what different components or supplies may face the identical pressures sooner or later, and has already began shopping for some specialised microchips straight from chipmakers moderately than going via its largest suppliers, Thai-Tang stated. Ford is also offering a six-month car combine and quantity forecast to suppliers as an alternative of simply two weeks, and extending that visibility out to a 12 months.


Automakers can’t afford to desert the just-in-time system’s down-to-the-penny value consciousness in a enterprise the place revenue margins are sometimes lower than 10 cents on a greenback of income. “The answer can’t be extra waste,” stated Ramzi Hermiz, a former provider CEO who advises firms. “The target must be how will we construct extra simplicity, flexibility and velocity within the provide chain.” Solutions may embrace the institution of extra suppliers nearer to their last prospects, together with bringing again work from China and different components of Asia, and higher use of standardized components and programs the place doable to permit for extra provider choices, trade executives stated. Bob Roth, co-owner of RoMan Manufacturing, which makes transformers and glass molding tools in Grand Rapids, Michigan, stated the resiliency conversations have accelerated over the previous 12 months. Nonetheless, the reply can’t be merely to shift the burden to smaller suppliers like his $40 million firm.

“We’re not going to tie up our working capital simply since you assume constructing stock or stockpiling stuff is a good thought,” he stated.

The reply for a lot of firms will likely be stress-testing their provide chains to seek out weaknesses a lot as banks did after the 2008 subprime disaster, stated Tim Thoppil, a accomplice and head of consulting for the Americas at engineering agency umlaut. Uncooked supplies and components for electrical batteries and motors may very well be the following disaster spot.

Sudden occasions just like the pandemic and chip scarcity are only a signal of the occasions, stated Steven Merkt, president of transportation options at TE Connectivity, which makes sensors, connectors and electrical elements for automakers.

“This isn’t a sequence of black-swan occasions,” Merkt stated. “This can be a precursor of what life goes to be like.”

(Reporting by Ben Klayman in Detroit, further reporting by Nick Carey in London; Modifying by Joe White and Matthew Lewis)

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