The supply shortage of engine control units that led to last week’s three-day closure at four of Nissan’s assembly plants in Japan has also spread to the US, forcing the carmaker to make further temporary assembly shutdowns at its Canton and Smyrna plants in Tennessee. But while certainly a headache for Nissan, these consequences may only be a sign of wider supply issues in the automotive supply chain, particularly among computer chips and high-tech components, the demand for which has been higher than expected at a time when inventories have also been driven very low.
The delay affecting Nissan’s supplier, Hitachi Automotive Systems, was caused by a shortage further down the supply chain when high-tech component provider ST Microelectronics could not meet the sudden demand for the integrated circuit chips needed on the engine control units produced by Hitachi.
Nissan’s use of just-in-time supply means a limited inventory of parts is kept on hand, so sudden demand spikes as experienced last week by STMicroelectronics quickly led to supply shortages at the plants.
"The automotive industry's recovery is taking place at a faster rate than expected and the whole automotive electronics supply chain is currently under pressure to keep up with the market's demand,” Michael Markowitz, spokesman for STMicroelectronics, told Automotive Logistics News.
While he wouldn’t comment directly about the situation involving Nissan, he pointed out that the most recently disclosed data for STMicroelectronics showed year-over-year growth for automotive devices of 61%, and despite the shortage affecting the supply to Nissan, he said the company was “strongly engaged in keeping the commitments it has made to its customers”.
Such increases have also come at a time when many suppliers in developed markets had reduced production capacity and inventories to adjust to lower demand levels. Surveys carried by the OESA, a supplier association in North America, for example, have revealed many suppliers have reduced the level of light vehicle production at which they can be profitable to fewer than 10m units per year. Similarly, warehouses and excess inventory has been taken out of the supply chain to adjust to this level.
With some suppliers working now above capacity, sudden demand spikes have a serious impact on production, with some suppliers having to ration their supply. This has been the case during the past six months particularly for computer chips and high-tech components, a source at a major carmaker has told Automotive Logistics.
More emergency shipments or better planning?
According to Brad Brennan, managing director of emergency logistics provider Evolution Time Critical, these potential shortages are leading manufacturers labouring under a just-in-time supply strategy and low inventories to look more at contingency planning and critical shipments.
“Recovering automotive volumes are placing strains on supply chains that have been leaned back very substantially,” said Brennan. “It's only natural that occasionally they should break, but the important thing is that this doesn’t affect production.”
Trying to prevent the sort of stoppage that has hit Nissan has kept premium freight logistics companies such as Evolution busy over the past few months, according to Brennan, and has helped make planning for priority shipments a more standard function of lean supply chain strategy.
But cost saving is not usually a concept associated with emergency shipments and airfreight, and with lean production strategies still prevailing, a large increase in warehouse stock is also not a popular solution. Companies weary of the excessive cost associated with such things are also looking at investment in production planning and better demand planning software.
Earlier this month, for example, computer giant Dell, traditionally heralded for its build-to-order supply chain, revealed that it would make moves to increase the number of computers it ships by ocean rather than airfreight from 30% to 70% by the end of 2013. The change would be made by using more pre-configured components, and more advanced forecasting tools. Such a move could signal wider changes in the high-tech supply chain, and last week JAE Europe, which supplies high-tech components to the car industry, revealed that it will begin using forecasting software from Infor to help reduce airfreight and save £500,000 ($762,000) per year.
Brennan admitted that the development of better planning software can only be a good thing, but said that, “like any data-driven system it is only as good as the information put in to it, and sometimes good data just isn’t available.”
Ultimately, it is the absence of this data in the supply chain that has had an impact at Nissan. A company spokesperson told Automotive Logistics News last week that it did not know how quickly it would take Nissan’s Japanese operations to recover from the shortfall. In Japan, Nissan was estimated to have lost production of 15,000 vehicles, while in the US shutdowns on Thursday last week have affected the production of 6,800 vehicles.
Production was up and running again as of yesterday morning but the company would not comment on when it would be back to normal. Nissan may not be the only carmaker to face this problem in the coming months.
