In motor vehicle production, approximately 15,000 to 25,000 parts are used. A shortage of just a handful of these parts can increase the lead time excessively.
As globalisation continues to boast, approximately 50% of spare parts are produced in China now. The closure of the Chinese market caused a shortage of 1.7 million automotive parts. 45% of harnesses used in cars by Germany and Poland manufacturers are produced in Ukraine, which was hampered by the invasion.
Because of complex operations, the automotive industry is responsible for 13.8 million jobs in Europe alone. 78,000 employees in the UK itself. Brexit made over 5000 vacant positions in the UK that could not be filled locally.
Lastly, an increase in fuel prices in the US, China, and India brought a sharp dip in demand.
A drastic improvement was noticed in the automotive industry’s supply chains to mitigate their risk after the pandemic. A few automotive spare parts selling companies took the early mover advantage on e-commerce platforms, whereas others opted for localizing the productions.
Let us discover the latest innovation and strategies that automotive industries adopted to decrease their losses and shortage of stocks, for better sustainability and growth in an uncertain environment.
How did the automotive industry overcome these uncertainties?
In September 2020, Jabil surveyed 105 automotive OEM decision-makers about the impact of Covid-19. When asked about their strategy, they responded that their priority is a resilient supply chain and better risk management. Even a study by McKinsey proved a substantial shift of focus from innovation to business continuity and resilient supply chains in the industry.
Increase in the number of Safety stocks:
Although there was a significant hit on the industry by the pandemic, businesses were prepared to escape the aftereffects of the invasion to some extent. The readiness of the businesses improved drastically as they focused more on safety stocks. Even the semiconductors were kept in large numbers as safety stocks by the companies. Furthermore, 89% of the respondents in the survey by Jabil incorporated “natural calamities” as a parameter in their supply chain forecast for better decision-making.
A paradigm shift towards e-commerce:
Traditional methods were getting obsolete even before the pandemic. Hence, Several manufacturers shifted to the e-commerce B2B model to decrease risk and maintain their revenue at par. Companies like Robert Bosch, Federal-Mogul, and Dorman took advantage of Amazon to launch their products and build their customer base. Several B2B retailers rushed to develop strategies and take advantage to obtain a competitive edge.
Production of Spare Parts locally:
We saw a rise in the production of spare parts locally. This decreased lead time and reduced costs on tariffs. Despite the decrease in revenue sales, General Motors stated that they noticed significant market share gains because of their improved supply of semiconductors fueled by local production.
Data sharing amongst Suppliers and Buyers:
There is a lot of data available, but it is not optimised efficiently. Data sharing amongst the supplier and buyer can further provide in-depth analysis to enhance decision-making. Better understanding helped companies like Ford and General Motors make strategic agreements with chipmakers to avoid shortages and gain the first mover’s advantage. Better communication with its suppliers helped Saint-Gobain decrease its last-minute shipments with heavy duties and reduce shortages and costs.
Improvement in e-commerce for customer retention:
Customer retention is never easy and even more competitive when talking about B2B eCommerce.
Companies like Amazon, Alibaba, and Maersk are developing new strategies to improve their platforms. Hence, the suppliers of the automotive industry can take a considerable advantage. Even in the B2B model, customers expect fast deliveries, easy returns, and a vast catalog. Automotive suppliers need to maintain their stocks to fulfill the consignments and gain market share.
Alternative ways to boost revenues, shift from B2C models to B2C:
A few automotive manufacturers are taking advantage of better and improved B2B models. With an increase in taxi services, automotive manufacturers can make strategic agreements with taxi service providers. For instance, Ratan Tata, owner of TATA motors, became an early investor in OLA electric and taxi providing service in India.
Secondly, car rentals are becoming extremely popular. Automotive manufacturers can generate revenue with limited production by providing effective subscription models and day rentals.
Over the last few years, the auto industry has shown tremendous resilience despite uncertainties. There is a visible decline in production because of shortages of automotive parts and increased tariffs.
Yet the automotive industry is evolving and adapting to changes. Learning from the past three years, there were visible improvements in the industry. According to McKinsey, there is an expected growth in the sector based on shared mobility, connectivity services, feature upgrades, and new business models to increase automotive revenue by 30% in 2030.
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