Read attached file
Following up on the chip crisis for the auto industry in the previous discussions, and revisiting some issues.
The existing issue with the relationship between automakers and chip suppliers.
Automakers have dealt with their suppliers in such a way as to allow short-term changes to their orders. Chip suppliers want long-term contracts with volume.
Chips used for autos are older versions. Semiconductor producers invest their capacity more in producing modern chips.
The issue of Just-in-Time (JIT), an auto industry standard for efficiency.
Read the following article
Chip crisis forces automakers to rethink just-in-time ordering (detroitnews.com)
Tesla's response
Tesla’s rise amid the chip shortage shows a dire need for innovation in the auto sector (teslarati.com)
Read the article and answer the following questions -
Should auto manufacturers change how they deal with chip suppliers? Provide Examples
Should the auto industry discontinue or refine JIT?
In general, these issues are about a firm's sourcing practices. Do you see firms changing how they perform sourcing from now on? You can speak from your own experience (auto industry or not).
Response to these comments below highlighted in red –
It's not easy getting a new car these days and due to global semiconductor chip shortage may affect car manufacturers until at least 2023 Even the chip manufacturers themselves are requesting that car manufacturers update their technology and make the switch to chips that are easier to produce. Despite the strain the chip shortage has put on the car market, auto manufacturers may have some good reasons for not transitioning, some of the following reasons why an auto manufacturer cannot change are below
For them, it's in part a question of safety as well as convenience.
Car manufacturers need to make sure that the technology they use is completely reliable and won’t cause life-threatening glitches in automated safety features
what is the probability that the newer chip is reliable and guaranteed won't get damaged. Nowadays the supply chain disruption is going on and may get settled in the coming years seeing recession in the corner the JIT system may get hit if they change from an older chip to a newer chip, I think change should happen but looking at the market and how much budgeted money is passed for the auto sector that should also consider
I don't think we can discontinue JIT in the automotive industry because it consists of heavy weightage in the chain but, we can refine it as on the time of covid it was decided to move away from the just-in-time manufacturing approach, which has since been the dominant inventory and manufacturing approach in the auto manufacturing industry. Just-in-time manufacturing, or lean manufacturing, is commonly used to run assembly lines, but when nothing is running on the time it makes sense to rethink the supply chain model. For certain components, Toyota asked its suppliers to stockpile parts, the antithesis of just-in-time manufacturing. The on-hand inventory held by Toyota’s largest supplier, Denso Corp. rose to around 50 days’ worth of supply in the year ended March 2020, up from 38 days in 2011. More inventory benchmarking information can be found on GSCI. Nowadays due to facing parts shortages and the consequent production delays, other auto manufacturers are also trying to undo the just-in-time inventory and production approach to some degree. Ford started stockpiling key parts and materials and using multiple sources. Volkswagen is building six factories so it can produce its own batteries. Tesla moves into raw materials production. In other words, they are trying to create more resilient supply chains.
Although there is already a shift in the sourcing trend, especially in the auto industry owing to the change in the public perception towards EVs, other industries are also catching up. This may be attributed to logistic disruptions, production delays, and minimizing over-dependence on external partners. Industries like healthcare, CPG, electronics and construction are already planning to implement digitalization and data-driven decision-making to develop strategies to manage these issues. According to this McKinsey article Links to an external site., Links to an external site. top companies have already taken steps involving a combination of inventory increases, dual sourcing, and regionalization to boost resilience. These steps taken in the past two years or so have paid off, and industries now have a better and more robust system to tackle Supply Chain disruptions, especially in sourcing.
