Supply Chain problems

Supply chainHardly a day goes by that one cannot hear the phrase “supply chain problems.” There are lots of industry-specific reasons unique to their particular sector but a common contribution seems to be the uptick in demand coming quicker and at higher-than-expected levels – just not enough supply. One hears a lot about the supply chain within the auto industry which affects new car and rental car availability. Here is about as concise an explanation as possible:A key reason for the acute problems in motor vehicles is that automakers appear to have underestimated demand for their products after the start of the pandemic. Expecting weak demand, they cancelled orders of semiconductors, an item with a long lead time and with a secular increase in demand from other industries. This problem is compounded by the fragmentation in recent decades of the auto supply chain across many countries and many firms. This phenomenon has made it difficult for automakers to trace the root causes of bottlenecks, since for example a semiconductor may be designed by one firm, manufactured by a second firm, embedded into a component (such as an air bag) by a third supplier, and only then delivered to an automaker’s assembly plant.  In most cases, neither the automaker nor the semiconductor manufacturer can trace what goes on in these intermediate layers (or “tiers”) of the supply chain, due in part to lack of trust among parties in supply chains, who fear that the information might be used to replace them or to bargain for a price reduction. While these problems are most acute in semiconductors, they are found in other parts of the auto supply chain as well. The auto sector is “the industry of industries,” so the price of cars is affected by the prices of the 30,000 parts in the car, from semiconductors to steel to plastic to rubber, and the logistics of transporting these parts across multiple national borders. (Source: White House blog)

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