With strict travel curbs, worldwide factory closures, declining auto sales, companies up and down the supply chain are feeling the pressure of the market disruption brought upon them by the pandemic.
Many of the recent developments raise eyebrows in concern. Most of the global workforce in this segment are either temporarily laid off or are wondering if returning to work will be safe with the second and third waves of the pandemic in full effect.
Even though there are jurisdictions in place to dictate the safe reopening, organisations involved in automotive industry sourcing are still questioning the steps they must take in order to get back on track in what seems to be a heavily disrupted industry.
So, it’s only natural to wonder what the “new normal” looks like for the automotive sector. So, let’s take a deeper dive into how the disruptions affected the workforce and supply chains, new supply chain models that will come into play, and what the future looks like for the automobile industry on the whole.
The Current Automotive Industry Sourcing Landscape
The COVID-19 pandemic has bred unprecedented repercussions on a global scale. Like almost every industry, the automobile sector is also battling depleted workforces and a downward forecast due to furloughs, lay-offs, and other cost-cutting measures. Since production has slowed down considerably, OEMs in the automobile supply chain have been forced to rethink their action plan and reschedule vehicle launches to a further date.
While the electric vehicle segment is gaining significant traction, the technologies involved in electric powertrains come with their own set of challenges regarding commercial viability and consumer adoption that are yet to be addressed. Subsequent COVID outbreaks have made the situation worse for an already complex and volatile industry.
Even the aftermarket segment, which has remained the most resilient in previous economic upsets, has been impacted due to travel curbs. That said, due to people willing to hold onto their existing vehicles, and receding restrictions appear as the light at the end of the tunnel, spelling an upturn as we advance.
However, not all is as bad as it gets. On an operational level, we have seen developments in the automotive industry that were years in the making, i.e., online traffic management. OEMs are more willing to collaborate with partners to resolve operational challenges by reimagining their organizational structures.
Returning To The Factories
As part of the broader manufacturing sector, the automotive industry also faces steep challenges in resuming normal operations in a COVID-proof environment. Several jurisdictional restrictions are already in place to ensure the safety of the workers, which will be key in rebooting the manufacturing facilities safely.
Factories will have to develop comprehensive manuals citing the new guidelines for upholding the safety practices, like social distancing, disinfecting the common areas, using handwashes and sanitizers, wearing PPE kits, etc.
In addition to human safety, the equipment and machinery not used in the last two years will also need to be cleaned and serviced, followed by exhaustive checks for safe operation before resuming manufacturing. Through effective planning and research, such operational challenges can be easily mitigated.
Exploring New Supply Chain Models
Product shortages emerged as soon as the traditional supply chain models were disrupted. The automobile industry was reluctant to adopt some of the hottest trends over the years, e.g., online channels, which meant the industry lagged behind other sectors when the pandemic hit.
While there are obvious shortcomings, there are also more opportunities to reimagine the supply chain models, especially now that the unprecedented pandemic is upon us. So here’s how the focus will shift to newer models from now on.
• Radical Focus Online
Right now, more consumers are interacting with businesses online than ever. Tesla’s growing popularity and incredible sales numbers at the end of a supply chain are a testament to the versatility of digital channels despite manufacturing restrictions and declining sales.
Industries, in general, have started to recognize the importance of setting up remote selling models, so the manufacturing segment is following closely. While the digital transformation of the automotive industry will take time, it will also significantly improve the reliability, agility, and effectiveness of automotive industry sourcing.
• Shift To Recurring Revenue Streams
In an uncertain economic landscape where cash is scarce, customers are usually hesitant to make long-term purchases. Instead, people prefer short-term subscription-based models, which do not tie up significant capital and offer the flexibility that the younger audience demands.
Mobility players, including some OEMs, have already begun transitioning into recurring revenue streams that offer customers greater flexibility. For example, the EV market, that brought the concept of OTA updates for special features, will facilitate dealerships building relationships with their customers while also offering customers the flexibility to customize their ride.
• Building Resilience Into The Supply Chain
The early days of the pandemic revealed how fragile the automotive supply chain was as raw materials went dry following travel curbs and lockdowns. Soon, industry leaders understood the importance of bolstering supply chain resilience and started looking for alternatives to alleviate the impact of the lockdowns.
Going forward, automobile players will need to diversify product sourcing and explore sustainable sourcing backups to reinforce the links between supply chain nodes. In addition, they will need to focus on worker health through rigorous checks and to monitor the interactions.
They will also need to improve the supply chain visibility to entice stakeholders to improve the efficiency of the processes. Finally, they will need to adopt industry 4.0 technologies like cloud computing and machine learning to improve the data collection and flag concerns before they become massive disruptions.
While the response window of a crisis is measured in months, full-demand recovery may take years. There’s no doubt that the impact is long-lasting and has affected almost every rung of the automotive supply chain. As a result, an increased focus needs to be placed on employee health and building a resilient supply chain with sustainability frameworks that can withstand the next crisis.
Although an immediate V-shaped recovery is looking far-fetched, holding a long-term perspective will help the automotive industry sourcing spring back to its feet sooner rather than later.