Recently car plants in Europe and around the world announced a temporary halt to vehicle production. This wasn't due to a drop in demand for cars, but a shortage of one of their smallest but most vital components, the microchip.
Microchips are in everything these days, from games consoles to mobile phones, fridge freezers to washing machines. They're so ubiquitous we rarely think of them as something that can be in limited quantities. But like everything that's mined, made or manufactured, getting this crucial part from where it's made to where it's needed relies on a robust global supply chain.
Thanks to a series of disruptions including a global pandemic, Brexit and the blocking of the Suez canal, supply chain issues are making the news. The general public only really hears about them when something goes wrong, but for many businesses, supply chain issues are a constant threat to service and stability.
Let's dig a little deeper into why the microchip shortage is such a challenge and see what lessons businesses can learn to make sure that supply chains always deliver a steady and predictable supply of goods.
Only a few companies around the world make microchips. They are very small but highly complex electronic circuits that need to be put together in a clean room environment. It requires a massive amount of time and financial investment to set up a factory that includes robotic technology and a highly skilled workforce to operate it. So, when sudden, unexpected demand makes it necessary to build new manufacturing facilities or ramp-up production in existing ones, the solution is not simple and takes time.
The chip-making process also requires a lot of water. Droughts in Japan and ice storms in the United States of America disrupted normal manufacturing. Which meant a limited supply of these crucial components.
Things like the weather, fires, floods, landslides, even volcanic activity, can have a huge impact on manufacturing processes as well as the way that finished goods can be shipped from A to B. Where businesses are based and where their supplies come from are key factors in the impact any disruption to the supply chain of goods might have.
As the world battled the COVID-19 pandemic and millions of people were instructed to stay home, the demand for electronic devices like laptops increased. At the same time, Apple released a new iPhone and many games consoles like Microsoft's X Box sold out. Technology companies like these tended to stockpile microchips to ensure that they could keep on selling their goods as demand increased.
Other businesses, like car manufacturers saw a drop in demand for their products, so they stopped ordering parts including microchips. Many car plants work on a just-in-time basis, with vehicle components scheduled to arrive exactly when they're needed on the production line. This saves car makers the expense, space, and additional handling needed to store millions of parts.
But when the demand for vehicles began to bounce back, they found that they couldn't get hold of the chips that act as the brains of a vehicle. The microchip manufacturers were already working full tilt and struggling to catch up with lead times after the disruptive weather. Which meant that the chips they were producing took longer to reach some customers, including the car plants.
Companies including BMW, Jaguar Landrover, Honda and Nissan were forced to stop production lines of certain models for a time. Those stoppages will no doubt impact business profits, not to mention their wider effect on the country's economy and the brands' reputations.
The latest in a long list of supply chain issues can be seen as a warning that no business is immune to supply chain disruption. What can you do to prevent it from having an impact on your business?
Understanding where your supplies come from, how they reach you and typical lead times is the basis of getting a handle on your supply chain. Do you know what items and materials you have in stock and how long you could keep going if supplies were disrupted? Tidy's inventory management software can easily answer and resolve these kinds of questions.
Can your business systems and processes adapt if you need them to? For example, how long does it take for you to sign up a new supplier? Is there anything in your processes that could become a bottleneck? It's important to build resilience into your systems so that a glitch in your supply chain doesn't become a threat to your business survival.
What would happen to your business if you couldn't get hold of products and materials as expected? This is a challenge many businesses have had to tackle during the COVID-19 pandemic. What plans can you put in place to minimise disruption to business as usual?
Supply chains will always carry a risk of unpredictability. And it may not be always possible to foresee or easily resolve every disruption. But by arming yourself with the best cloud-based technology that continuously supplies essential knowledge about the state of your inventory; provides the flexibility to operate and trade confidently and helps build business resilience through better planning and forecasting, you can reduce your supply chain vulnerability.