How to break a supply chain

January 27, 2021 // By Peter Clarke
How to break a supply chain
A sophisticated supply chain providing components for some of the most complex things made by humankind has just broken down leaving plants idle

The automotive supply chain was already under strain pre-Covid, and when carmakers closed plants for several weeks in 2Q20 it appears to have been what sent it over the edge.

Carmakers have spent years perfecting the just-in-time delivery system but still thought that suppliers were at their beck and call. Did they fail to realize that while their inventory comes from multiple chip suppliers many of those chip companies are fab-lite and use just a couple of foundry suppliers in Taiwan?

It would also appear that the subsequent problems may have been of carmakers own makig. The plant closures were followed by rejigged plans to continue making older models rather than accelerating moves to more advanced models. Such chopping and changing when wafers spend months just being processed in a fab has implications.

Handing out just-in-time requirements can work when the OEM has the whip-hand and can force suppliers to hold stock of components. But when supply chains are extended through many layers, each layer thinks it can control its suppliers. And when the ultimate source of supply is a single supplier for any given component the OEM is no longer in control.

That means there is no stock pile of components being held just in case the carmaker wants to increase production, or changes its plans.

Nonetheless, rather like a broken fan belt stops a car, a broken supply chain stops the car industry and it looks like this event will now force OEMs to re-evaluate the benefits of the just-in-time supply of components of globalized supply-chains.

Will that mean Volkswagen or Daimler will be trying to throw up a wafer fab and that we will be heading back towards vertically integrated OEMs? No. But it does mean that common pools of interest such as the German nexus of Volkswagen, Daimler, Bosch and Continental,


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