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Tuesday, November 30, 2021

Automakers Rethink Production Strategies To Cope With Global Chip Shortage

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Whether it’s buying computer chips directly from manufacturers, reconfiguring cars, or producing them without parts, they have to be creative to deal with the global semiconductor shortage.

Shortages, due to supply problems and an increase in demand for consumer electrical products during the pandemic, have hit the automotive industry hard, with millions of vehicles around the world not being produced because important parts are missing.

Since the problem lasts longer than initially expected, manufacturers such as Daimler and Volkswagen have had to rethink production strategies.

Automakers typically purchase parts from major suppliers, such as Bosch and Continental, which in turn purchase from suppliers further down the chain.

In some cases, that has led to a lack of transparency, said Ondrej Burkacky, a senior partner at McKinsey.

“There was the fallacy of thinking that you could choose between two suppliers, but the truth is that both had the chips manufactured in the same foundry,” he said.

That’s changing now, according to Markus SchAfer, Daimler’s purchasing manager.

German automaker Mercedes-Benz has established a direct line of communication with all chip suppliers, including wafer producers in Taiwan, it said at the IAA auto show in September.

Volkswagen boss Herbert Diess talks about “strategic partnerships” his company has established with manufacturers in Asia.

Chip suppliers should be treated differently given their strategic importance to the industry, said Stefan Bratzel of the Center for Automotive Management.

“You have seen the problems that arise when you treat chip companies like other vendors and stop calls,” he said.

Burkacky from McKinsey said you should consider direct investments in production, or longer contracts with terms of more than 18 months.

“Not much of that has been implemented yet,” he added.

‘MORE resilient’

Meanwhile, vehicle developers are doing their part to help manufacturers manage supply shortages.

Annette Danielski, chief financial officer for Volkswagen’s Traton truck unit, said the company was trying to clear some space on the motherboards of the control systems.

“If we change the software, we can use fewer semiconductors and achieve the same functionality,” he said. “That sometimes takes a long time because the regulatory authorities intervene, but there are areas where you can change something quickly.”

Daimler relies on new designs for control units. Rather than using a specific chip, these are designed to work with an alternative that can be used in the event of delivery problems, said the company’s chief purchasing officer, SchAfer.

Tesla is considered the model for this.

The company reprogrammed the software in three months to be able to use other less scarce chips, which allowed the US.

electric car maker to weather the crisis better than many others.

General Motors has said it will work with chipmakers like Qualcomm, STM and Infineon to develop microcontrollers that combine various functions previously controlled by individual chips.

“We are trying to create an ecosystem that is more resilient, more expandable and always available,” said a company spokesperson.

Prioritization

Some they’re stacking, or what BMW calls “hole shoring.”

The entire car is built except for a missing part, and then can be completed relatively easily when it appears.

Other they are also using this strategy. Sometimes vehicles are delivered without certain chip-controlled functions.

Semiconductors are also preserved for high-quality vehicles, such as electric cars, while customers face even longer wait times for low-priced combustion engines.

That strategy is slowly reaching its limits. Volkswagen had to temporarily halt production of electric cars at its Zwickau plant in Germany recently.

It is not yet clear how well these coping strategies work.

“The bill will be introduced in mid to late 2022, when you can see who came out of the crisis well and who did not,” said McKinsey’s Burkacky.

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