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When will the chip shortage end?

15/12/2021

Chip shortage is forcing auto industry to rethink agile manufacturing

The pandemic has caused a massive disruption in global supply chains, affecting everything from toilet paper to cars, and many are wondering when this crisis will end. Chip shortage is getting worse.

The automotive industry is likely to experience its impact until the end of 2022, primarily due to the ongoing shortage of semiconductors (microchips). With many OEMs struggling to get the car chip shortage, without which cars, if they roll off the assembly line, no further than the factory parking, their potential buyers are left disappointed.

Some supply chains seem to be bouncing back a bit. However, the auto industry is still far from recovery. At the onset of the pandemic, market forecasts for the industry were miscalculated. 

Some experts predicted that the pandemic would limit the number of cars purchased as people drive less. As a result, manufacturers reduced their own auto chip shortage and, accordingly, reduced purchases of microcircuits.

Supplies that were reserved for automotive OEMs were quickly reallocated to other consumer electronics, which were experiencing unprecedented growth fueled by remoteness.

When will the chip shortage end?

Experts said it expects the chip shortage to continue through 2022 and into 2023. However, as the pandemic continued, car purchases unexpectedly surpassed all forecasts. For example, Ford sold over 500,000 vehicles in the first quarter of 2021, up 1.0% from the same period a year ago.

As a result, original equipment manufacturers began to feel that the ongoing pandemic was taking their toll on their supply chains, and their proven just-in-time (JIT) approach left them without access to the vital chips that modern cars require.

The automotive industry has long used the JIT model for inventory management, varying the production and listing of vehicles as needed.

This "flexible manufacturing" idea was designed to reduce overhead costs by minimizing the surplus of parts and components, but the ongoing shortage of microcircuits is destroying this scheme.

In general, what does the lack of microcircuits have to do with the JIT approach? Original equipment manufacturers who have traditionally taken a lean approach with minimal buffers or supply margins have no room for error.

Any disruption to the semiconductor supply chain, such as due to the weather, that results in a shutdown of a chip manufacturing plant or a delay in chip delivery has an immediate impact on car manufacturing, and OEM losses begin to rise.

As a result, you can see hundreds, sometimes thousands, of unfinished cars parked in giant parking lots that cannot be put on sale due to the lack of semiconductor chips.

As cars become more and more dependent on semiconductor components, original equipment manufacturers must stop responding to supply chain disruptions and start taking the initiative themselves. One way to achieve this in the automotive industry is to move away from the JIT approach when purchasing parts needed for continuous production.

The purchasing departments responsible for ensuring the quality and safety of chips are under more pressure than ever. They may find themselves in a stalemate buying chips from the open market that seem good, but may be of poor quality or inauthentic.

To help overcome current chip shortages and prepare future shortage avoidance strategies, purchasing teams must consider deciding factors when sourcing components to ensure that only quality parts end up in their company's vehicles.

Vendors say that OEMs will not be able to tackle the ongoing chip shortage on their own. The automotive industry must adapt like never before, and one way to do this is to partner with a knowledgeable and reliable distributor with experience in semiconductor supply chain management.

Although the automotive industry is a relatively new player in the semiconductor industry, many electronic component distributors have been in the industry for several decades.

Industry experts believe sourcing teams can work with a qualified distributor to find solutions that meet their unique needs and help alleviate pain points caused by the current market.
 

chip shortage

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