Top 3 Ways To Optimize the Automotive Supply Chain in 2024

The Covid-19 pandemic and the semiconductor chip shortage led the global automotive sector into a crisis. A minor supply shortage at the production end created massive disruptions in the whole automotive supply chain. Since semiconductor chips are extensively used in automobile manufacturing and take a long time to manufacture (See Figure 1), the whole industry faced supply delays and production slow-downs.

Figure 1. Lead times for semiconductor production

The global automobile manufacturer Toyota cut down its global production by 40% due to the semiconductor crisis, including reductions in future forecasts. The current global situation of the industry has identified various weaknesses in automotive supply chains which need quick action.

This article highlights 3 ways supply chain leaders in the automotive sector can optimize operations to overcome current and future challenges.

1. Leverage digital solutions

Automotive supply chains have always been complex in nature. Digital solutions are the way forward for the industry.

Harness data

Manufacturing a car requires sourcing thousands of components from a large network of suppliers. This network creates and manages a vast amount of data. Automotive supply chain leaders should focus on harnessing this data through digital solutions to achieve end-to-end visibility and actionable data insights to shed light on factors causing disruptions in the value chain. 

Leverage AI

Since many companies and countries are investing in increasing semiconductor production capacity, AI-enabled tools can help significantly improve semiconductor production processes. AI can help in the following ways:

• AI-enabled quality control systems can help reduce defects and speed up the production process
• AI can also help automotive suppliers in accurately predicting future trends to improve demand forecasting and overall supply chain planning
• AI-enabled cobots can build processors and other automobile parts with more speed and accuracy
• AI can also help improve logistics processes through optimized scheduling and inventory levels for higher resilience.

Check out our comprehensive article to learn more about how AI can help improve logistics operations.

Watch how Intel is innovatively working towards boosting semiconductor chip supply.

Leverage process automation tools

Process automation tools can not only help improve the production and distribution of semiconductor chips and other car parts but can also help overcome the labor shortage issue in the industry by automating back-office tasks, which are often time-consuming and erroneous. For instance, procurement teams can use RPA to keep an eye on inventory levels and automatically initiate a purchase order when supply levels sink below a specified threshold.

Check out this quick read to learn more about how automation can improve supply chain operations.

2. Strengthen supplier relations

Forbes identified weak supplier relationship management as one of the main reasons for the current issues that the industry is facing. Global automakers are strict and inflexible towards suppliers regarding scheduling and financial terms. This creates immense pressure for the suppliers, which passes on to the suppliers’ suppliers.

Global automakers have a lot of influence over the market; this power leads to cost negotiations and other benefits. The issue in this area is that the benefits are not shared with the suppliers. Automotive supplier chain managers need to start caring for and supporting their suppliers.

This will lead to enhanced vertical supply chain visibility and eliminate vulnerabilities in the supply network.

To strengthen supplier relationships, automotive supply chain managers can:

• Establish a mutual understanding by sharing goals and vision
• Analyze and assess internal and external operations across the supplier network
• Improve the supplier network by diversifying and supporting it
• Leverage digital solutions to enhance data sharing and collaboration
• Improve sustainability to maintain the attractiveness

To learn more about how to improve your supplier relationship management, check out our comprehensive article.

You can also use our data-driven list of no-code supply chain software to compare the top vendors and find the right fit for your automotive supply chain.

3. Take control of the supply

The current disruptions in global automotive supply chains are mainly due to issues at the suppliers’ end. Ever since the Toyota manufacturing system became standard practice for automakers around the world, the main focus has been to reduce waste and become lean. However, this is also one of the major reasons for the industry’s current situation.

To overcome this issue, many companies can collectively move from cheaper off-shore suppliers to in-home ones, even if it means relatively higher costs.

For example, Ford has recently partnered with a US semiconductor chip manufacturer Globalfoundries to reduce their dependence on their suppliers from Taiwan and take more control over their semiconductor supply. The initiative is also aimed at supporting the horizontal supply chain as well.

Research by California Management Review studied different automotive supply chain network simulations and the impact of sudden disruptions. The study found that highly globalized and regionalized supply chains could withstand sudden disruptions such as the Covid-19 pandemic.

Watch the video to learn more

To optimize your supply chain operations, you can check our data-driven lists of supply chain tools and services:

• Supply Chain Software
• Supply Chain Visibility Software
• Supply Chain Business Networks
• Transportation Management Software
• Supply Chain AI Tool

Further reading

• 3 Ways To Optimize Your Supply Chain
• Top 5 Ways To Improve Supply Chain Resilience
• Top 5 KPIs To Measure Supply Chain Performance

If you need help finding a vendor or have any questions, feel free to contact us