What Supply Chains Might Look Like After COVID-19By Alejandro Enríquez | Tue, 03/24/2020 - 12:16
As automakers take measures to cope with COVID-19, automotive supply chains might be redesigned under a more resilient scheme.
A car is made of 30,000 separate parts. It is one of the most intricately manufactured products and relies on an extensive supply chain characterized by outsourcing, just-in-time operations and thin margins. COVID-19 has not only exposed the fragility of global supply chains, regardless of the industry, but it has also questioned what car manufacturers have been taking for granted. That is, a supply chain relying just on cost, quality and delivery.
Mexican auto parts manufacturers can be hopeful to support global supply chains while China is taking a break."
As the COVID-19 outbreak reached a critical point in China in February, companies started to take rapid measures to prevent any disruption in their supply chains. Wall Street Journal documented a series of cases where companies used cargo planes to transport critical components. In addition, according to a statement from Laurie Habour, auto supply chain consultant, to Forbes: “at the global level, the tool and die industry was already experiencing a 30-60 day production delay.”
Despite measures taken, disruption was inevitable. First, auto markers in Europe started to reduce their operations until suspension became necessary. In Mexico, OEMs took a similar approach and 11 out of 12 OEMs – so far – have announced operations suspensions for at least one week and some up to April 19. South Korean KIA is the only OEM in Mexico with ongoing operations under the strictest hygiene standards.
Mazda is an interesting case in terms of how supply chains might behave in the short term, as well as the opportunities that disruption could bring to Mexican auto part manufacturers. On March 16, Reuters documented a case where the company chartered a missing component for the Mazda3 and CX-models from Mexico, after the supplier increased production of the component by 50 percent. After this US$5-million operation, Mexican auto parts manufacturers can be hopeful to support global supply chains while China is taking a break.
Future supply value chain designs will consider resilience, responsiveness and reconfigurability."
According to the United Nations Conference on Trade and Development (UNCTAD), COVID-19 could cost the global economy up to US$2 trillion. In addition, traditional supply chains that prioritize lows costs and deliveries will most likely be reorganized to minimize risks. In words of MIT Professor Simchi Levi, “companies will come under pressure to diversify where they make their products, which will prove easier for some than for others.” For the World Economic Forum, KPIs to be considered for future supply value chain designs will likely contain traditional metrics as well as resilience, responsiveness and reconfigurability.