Crain's Detroit Business: John Taylor on guesswork involved in automotive supply chain
Have some patience for that neighbor with the unkempt grass this summer — it could be the supply chain disruptions of the past year just won't get off their lawn. Supply chain woes, from lawn and garden equipment to the global computer chip shortage afflicting the auto industry, continue to drag down many metro Detroit businesses otherwise in boom mode from record demand. There's been little sign of relief from skyrocketing shipping costs, which stem from the near halting of international trade last year due to the COVID-19 pandemic and the unforeseen spike in consumer demand. From circuit board suppliers, to tier ones and OEMs, the impact of shipping delays and resulting parts shortages has rippled through every level of the automotive supply chain. Supply issues, most notably the microchip shortage, are predicted to cost the global auto industry more than $110 billion this year, according to Southfield-based consulting firm AlixPartners. OEMs generally bear the brunt of increased shipping costs, but suppliers suffer from delays, said John Taylor, chair of the department of marketing and supply chain management at Wayne State University. To prevent assembly lines from idling, automakers will often demand that suppliers keep a large amount of "just in case" inventory and penalize them for failure to deliver. "It costs a lot of money to sit on inventory," Taylor said. "You have to finance it, store it ... it goes obsolete. You want a solid, rapid flow of goods from around the world." Without that, suppliers are forced to guess how much inventory they need, while factoring in the uncertainty of when it might actually arrive, Taylor said. The guessing game has become a familiar one across industries.