Supply-chain Concerns Deepening for Auto Industry

David Leggett, Automotive Editor at GlobalData, offers his view

Following remarks by Jaguar Land Rover (JLR) chief Dr Ralph Speth suggesting that the company faces a shortage of key components needed for its UK car plants;

David Leggett, Automotive Editor at GlobalData, a leading data and analytics company, offers his view:

“The news from JLR isn’t surprising. It is an inevitable consequence of the economic impact of the COVID-19 outbreak, especially on manufacturing supply-chains. Even as some Chinese factories restart production following an extended shutdown for the Chinese New Year holidays, the effects of output disruption to countless parts suppliers – especially in Hubei province – will now be impacting supply-chains globally after a period of lag when parts shipments were in transit.

“With a typical car containing 20,000 parts, some Chinese sourced content in every car is a given. Procurement managers at the car companies will be struggling to get visibility on where the critical supply-chain pinch points are – both in terms of what they directly source and also what comes in from Tier 1 suppliers in the form of sub-assemblies and their sourcing difficulties further down the supply-chain.

“The car companies will look at options such as switching to alternative supply sources, but for some critical parts that may be very difficult to do in the short-term – thus halting production when supply dries up.

“All they can do is closely monitor the situation and look at risk mitigation measures where they can. Buffer stocks to ride out supply disruptions will be limited due to the predominance of ‘just-in-time’ lean manufacturing processes that keep inventory levels low.

“On the upside automakers across China restarted production this week, after three weeks of shutdowns to help prevent the spread of the COVID-19 virus. Although most are operating in conditions far from normal, the restart of manufacturing operations will boost confidence that the public health crisis – and its economic impact – is at least showing signs of levelling off.

“Some economic forecasters are hoping to see a V-shaped recovery in China emerge later in the year, but February and March will not be good months for China’s economy, with manufacturing especially hard hit.”

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