Forbes: Tim Butler on mismatch between automotive supply and demand

The Global Chip Shortage rages onward and, as of July, has resulted in more than one million unmanufactured vehicles in the U.S. alone and could reportedly extend into 2023. The major question of how such a massive mismatch between supply and demand could exist has multiple answers with several, unrelated root causes (e.g. pandemic affects on usage patterns, an impactful fire at a major Japanese plant caused by an electrical overload), however one of the most frequently suggested reasons was a mismanagement of the supply chain. “When the drop in automotive sales at the beginning of the pandemic happened, automotive companies just halted their orders. There was an implicit tradeoff there: saving cashflow and avoiding potential obsolescence,” said Timothy Butler, professor of global supply chain management, Wayne State University. As Butler points out, another key example of tradeoffs is single sourcing versus competitive sourcing. “If you single source and the supplier goes on strike or has such a catastrophe, you have a single point of failure,” cautions Butler. “Additionally, if that desirable supplier is also single-sourced to your competitor, you might have risks in sharing Intellectual Property.” So what have we collectively learned, if anything? “We all have to admit that hindsight is 20/20,” states Butler, “but these types of problems happen over and over again. Each is viewed as a one-off, but it’s the same thinking that undermines the successful endings.”

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