And sadly, there are signs that the chip shortage is far from over, with some analysts predicting that the struggle could even continue until 2022, despite all investments in semiconductor manufacturing.
General Motors and Ford are two of the companies that have been hit hard by the chip shortage, and like everyone else, they have had to turn to painful solutions to deal with it all. For example, GM and Ford have temporarily halted production at some of their facilities, while also shipping some models without critical systems, such as start-stop, for example.
At this time, there is no indication that the chip shortage is coming to an end too soon, so everyone is looking for ways to manage this crisis more effectively, and therefore minimize the disruption it is causing to their operations.
Industry analysts believe automakers need to completely change their business model, as most of them have so far worked with almost no chip inventory. Since the demand for chips has never been so crazy, automakers have used a just-in-time inventory, or JIT, which allowed them to receive chips exactly when they needed them.
In other words, each automaker ordered precisely the number of chips they needed, without creating any type of inventory just because they were always sure that no delays would occur.
So in theory, this is one of the things that not only GM and Ford, but the rest of the automakers could change as well. Creating a chip stock is one way to ensure in advance that no production downtime will be necessary, although at the same time it also means that the automakers themselves have to take the risk of creating stocks, just like many large companies in various industries. .
This is an idea that several automakers are already exploring, although right now there is a major concern that once things get back to normal and the chip shortage is resolved, the industry would end up with an oversupply, so creating inventory ahead of time wouldn’t make much sense in the long run.
Then there’s something General Motors is supposed to be exploring right now, although at first glance it’s an approach that would only work during those tough times when a production disruption could happen overnight. .
The U.S. automaker is believed to be considering a streamlined supply chain that would allow the company to contact smelters directly. With fewer players involved in the chip supply chain, GM believes the likelihood of disruptions (whether it’s production slowed by the health crisis, new government restrictions, or lack of materials) that could possibly affect its operations is significantly lower.
And on some level, it might work, especially since it might help companies like GM reduce their overall spending with chip sourcing as well. On the other hand, these savings should be passed on to the customer, which is unlikely. The streamlined supply chain is therefore not as easy to do as it seems at first glance, especially because everyone is trying to work as efficiently as possible with the foundries, also with the aim of obtaining their orders on time.
One approach that few automakers seem to be exploring for obvious reasons is to invest in a modern chip design. Automakers are still sticking with the old chip platforms which are still in high demand at the moment (in fact, foundries have already moved on to a new design and don’t want to expand the old design capability because that would only be ‘a short-term investment), as migrating to a new platform requires additional expense, especially in the testing phase, just to make sure everything is working properly.
On the other hand, Tesla is living proof that redesigned electronics using next-generation chip architecture is the right way to go, especially since the supply in this market is by no means limited, and turning to production stoppages is therefore not required. But for Tesla, things are a lot easier, especially since this is a tech-driven company and therefore developing the underlying software is much more convenient than it is for a traditional car maker.
Many people think that GM and Ford should just go for cars with fewer systems, so the number of installed chips would be drastically reduced. Of course, this is not always possible due to regulations, although GM has already turned to such an approach by removing start-stop systems on some of the cars it produces.
The bad news is that everyone expects the chip shortage to end in a year or two, and automakers could just wait for that moment to arrive, without changing too much on their side.
Once chip production is aligned with demand, automakers will no longer need to adopt new business practices, so if anyone wants to change their approach to chips, they have to do it now.
There will be no excuse if a second chip shortage occurs, and automakers are caught off guard again.