Flex: How to Overcome Automotive Supply Chain Challenges

Compared to many other industries, the automotive supply chain is a clear risk outlier.

In 2021, almost half (45%) of global automotive manufacturers cited supply chain issues as the main cause of line stoppages.

Meanwhile, data from thousands of companies and more than 20,000 products within Flex’s global supply chain has revealed that availability risk is 55% for product parts – more than double the average of other tracked industries. Stockout risk is 93%, which can lead to production stoppage, damage customer relationships and increase costs.

Drawing on more than three decades of experience in the automotive sector, Mike Thoeny, President of the Automotive Business Group at Flex, offers unique insight into how the automotive industry can alleviate these challenges.

Why is the automotive industry a risk outlier compared to other industries?

Next-generation mobility driven by the rise of software-defined vehicles is driving major industry transformation. This is creating a path that leads to exciting opportunities for both automakers and consumers, as the line between functional vehicles and feature-rich consumer devices continues to blur. As we look towards the future, it's crucial to assess the readiness of the industry to meet the supply chain demands of this new era.

In recent years, supply chain issues have led to significant disruption, resulting in the loss of millions of vehicles and billions of dollars in revenue. Adding to this challenge is the growing reliance on semiconductors, as next-generation mobility can only be achieved if we have the chips and hardware to support it. 

According to Boston Consulting Group, chip content per vehicle is expected to grow by approximately 7% annually, reaching 1.5-2 times its current level by 2030.

Concerns surrounding the availability of semiconductors are echoed by industry experts. According to KPMG's 24th Annual Global Automotive Executive Survey, 45% of OEM executives outside of China expressed extreme concern about access to semiconductors. Additionally, data from Avnet reveals that, on average, semiconductor lead times have not yet recovered to pre-pandemic levels. These concerns extend to other critical areas such as battery components and rare earth elements.

What are the biggest challenges in the automotive supply chain?

At Flex, our customers come from diverse industries across the world, which gives us a good understanding of the supply chain risks both within and outside the automotive industry.

Our analysis of supply chain trends across multiple industries and our proprietary data – which includes more than half a million components across 2,000 total programmes over three years – reveals that, at its highest level, the automotive industry has a risk score that is twice as high as other industries. 

To further explain the challenges faced by the automotive industry, it might be helpful to draw a parallel with the cloud industry. Both industries are undergoing technology transitions that are transforming their respective landscapes. Rapid adoption of AI is driving the demand for hyperscale data centres in the cloud industry. 

Similarly, the rise of the software-defined vehicle in the automotive industry follows a similar trajectory, as new architectures are required to address ever-increasing power and compute challenges. We have reviewed cross-industry supply chain data and can point to several critical areas where the automotive industry is falling behind cloud, including stockout, availability and lead times. To catch up, the automotive industry must embrace supply chain resiliency initiatives at scale. 

What best practices from other industries can the automotive sector adopt? 

The automotive industry can learn from the cloud industry's supply chain management approach.

Three key areas stand out: regionalisation, multi-sourcing, and collaboration.

• Regionalisation: Manufacturing in-region can help overcome risks to business continuity arising from tariffs, geopolitical tensions and supply chain disruptions. It not only helps mitigate risks but also offers other benefits such as improved responsiveness to regional customer demand and reduced carbon footprint.
• Multi-sourcing: Having multiple suppliers for key components increases agility and resilience, resulting in fewer line stoppages, less recalls, competitive pricing and faster time-to-market. While it may involve upfront costs and work, the benefits far outweigh the drawbacks. 
• Collaboration: By partnering with suppliers and ecosystem partners early in the product lifecycle, automakers can align roadmaps, define desired features and secure supply continuity. This approach accelerates innovation and allows for faster response to shifting market conditions.

How can joint risk management tools mitigate automotive supply chain risk? 

Digital supply chain applications are imperative to rigorously evaluate, manage and make informed decisions. We developed our Joint Risk Management application to identify supply chain risks early in the product life cycle.

Using AI and machine learning-driven analytics enables high-risk industries, such as the automotive sector, to analyse and provide recommendations on the quality and capability of suppliers, assess demand from other companies using the same components in their bill of materials and end-of-life risk, among other factors. 

Why is cross and inter-industry collaboration so important to strengthen the automotive value chain?

The automotive industry is at a critical juncture as it prepares for next-generation mobility.

To deliver on this unprecedented market opportunity, our industry must work as an ecosystem to build a more resilient automotive supply chain, because no single player can make it across the finish line alone.

By adopting best practices from other industries, such as regionalisation, multi-sourcing, collaboration and the application of advanced digital supply chain applications, we can overcome our shared challenges and respond faster to shifting market innovations while speeding innovation. 

******

Check out the latest edition of Supply Chain Magazine and sign up to our global conference series – Procurement and Supply Chain LIVE 2024. 

******

Supply Chain Digital is a BizClik brand.