Have you ever had that sinking feeling that you have experienced something previously that you are going through again? The current microchip shortage affecting the automotive industry is definitely giving me that feeling.
What happened, exactly? Too many companies increased their orders of microchips at the same time during the beginning of the COVID-19 pandemic. Because of the 14-week lead time, the recurring automotive orders could not be filled.
It wasn't that the demand for vehicles, and thus the demand for chips, did not change significantly early in 2020. What the chip manufacturers and the automotive companies missed, or misread, was the demand for chips coming from outside of automotive — demand driven by the pandemic. New generations of smartphones, new gaming consoles and an increased demand in IT infrastructure and PC hardware resulting from the fact that many people have been forced to work remotely all drove increased nonautomotive demand for chips. And it will hurt.
For Dan Hearsch, managing director of automotive and industrial at AlixPartners, it looks like this "all the way up and down the supply chain, everybody is out some portion of money. This could be 10 percent of global demand this year, its impact, which craters the recovery. We don't think we're overstating this."
This chip shortage, in my opinion, is simply the latest in a long line of supply chain disruptions that have forced the automotive industry to rethink its supply chains and strategize a new way forward. Every time there is a major disruption to the supply chain in automotive, people always ask the same questions. Should we:
- Carry more inventory?
- Rethink just-in-time and lean principles?
- Have a more diverse supply base?
If we do, will it solve the problem?